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Demonstrate conformance with the IIA Code of Ethics

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Conformance with the IIA Code of Ethics is essential for internal auditors to uphold professional integrity, objectivity, and confidentiality in their work. Let’s delve deeper into the key principles of the IIA Code of Ethics, along with their definitions and examples of how internal auditors can demonstrate conformance.

Integrity:

Integrity is the foundation of the IIA Code of Ethics, and it requires internal auditors to be honest, truthful, and transparent in their conduct. They should not compromise their professional judgment or allow personal biases to influence their work. Internal auditors should act in a manner that promotes trust and confidence in the internal audit profession.

Example: An internal auditor is performing an audit of a company’s procurement process and discovers evidence of kickbacks from suppliers to a procurement manager. The internal auditor acts with integrity by reporting the findings to appropriate management and taking necessary steps to protect the evidence from tampering.

Objectivity:

Objectivity requires internal auditors to be impartial and unbiased in their assessments and conclusions. They should base their opinions and recommendations on reliable evidence and not be influenced by personal or organizational interests. Internal auditors should ensure that their work is free from any conflict of interest.

Example: An internal auditor is conducting an audit of a company’s financial statements. The auditor remains objective despite pressure from management to downplay certain financial irregularities and presents the findings accurately and objectively to the audit committee.

Confidentiality:

Confidentiality requires internal auditors to protect the confidentiality of information obtained during the course of their work. They should not disclose such information unless required by law or professional standards. Internal auditors should ensure that sensitive information is handled securely and shared only with authorized individuals.

Example: An internal auditor is reviewing a company’s IT system to identify potential cybersecurity risks. The auditor maintains confidentiality by not sharing sensitive system vulnerabilities with anyone other than the authorized IT team and the audit committee.

Competency:

Competency requires internal auditors to possess the necessary knowledge, skills, and expertise to perform their work effectively. They should continuously enhance their professional competence and keep up-to-date with relevant developments in the internal audit profession.

Example: An internal auditor participates in regular professional development activities, such as attending training workshops, webinars, and conferences, to stay updated with the latest internal audit practices and industry trends, demonstrating a commitment to professional competence.

Compliance:

Compliance requires internal auditors to adhere to relevant laws, regulations, and professional standards. They should conduct their work in accordance with the IIA’s International Standards for the Professional Practice of Internal Auditing (Standards) and any applicable laws and regulations.

Example: An internal auditor ensures that their audit work is in compliance with the IIA Standards, such as the Standards for the Professional Practice of Internal Auditing and the Code of Ethics, as well as relevant laws and regulations, to maintain the highest level of professional integrity and conformance.

Professionalism:

Professionalism requires internal auditors to demonstrate a high level of professionalism in their conduct, demeanor, and interactions with others. They should act in a manner that upholds the reputation of the internal audit profession and fosters trust and respect.

Example: An internal auditor maintains a professional demeanor and remains respectful and courteous while interacting with auditees, management, and other stakeholders, even in challenging situations, to uphold the standards of professionalism.

 

Case Study 1: Conformance with the IIA Code of Ethics

An internal auditor, John, is conducting an audit of a company’s procurement process. During the audit, John discovers evidence of a procurement manager receiving kickbacks from suppliers in exchange for awarding contracts. John acts in conformance with the IIA Code of Ethics in the following ways:

 

Integrity:

John acts with integrity by accurately documenting the evidence, not tampering with it and reporting it promptly to appropriate management, despite potential pressure to withhold the findings.

Objectivity:

John remains impartial and unbiased in his assessment of the evidence, without allowing personal biases or organizational interests to influence his conclusions. He presents the findings objectively to the audit committee, without downplaying or exaggerating the severity of the issue.

Confidentiality:

John maintains confidentiality by handling the sensitive evidence securely and sharing it only with authorized individuals, such as management and the audit committee, in accordance with the company’s confidentiality policies and applicable laws and regulations.

Competency:

John demonstrates his professional competence by effectively identifying and documenting the procurement manager’s unethical behavior through thorough audit procedures. He also stays up-to-date with relevant developments in the internal audit profession to enhance his knowledge and skills.

Compliance:

John ensures that his audit work is in compliance with the IIA Standards, such as the Standards for the Professional Practice of Internal Auditing and the Code of Ethics, as well as applicable laws and regulations. He follows the company’s policies and procedures in conducting the audit, and reports any potential non-compliance issues to management.

Professionalism:

John maintains a high level of professionalism in his conduct, demeanor, and interactions with auditees, management, and other stakeholders. He communicates respectfully and courteously, even when addressing sensitive and potentially confrontational issues during the audit process.

 

New Developments in Conformance with the IIA Code of Ethics:

The IIA Code of Ethics is periodically updated to align with evolving professional practices and ethical considerations in the field of internal auditing. Some recent developments that internal auditors should be aware of to demonstrate conformance with the Code of Ethics include:

 

Technology and Data Ethics:

With the increasing use of technology in internal audit processes, including data analytics and artificial intelligence, internal auditors should ensure that their use of technology and handling of data comply with ethical standards. This includes maintaining confidentiality, protecting data privacy, and using technology responsibly and ethically in the audit process.

Example: An internal auditor uses data analytics tools to analyze a company’s financial data. The auditor ensures that the data used is obtained and analyzed in accordance with relevant laws and regulations, and that any potential ethical concerns related to data privacy and security are addressed.

 

Diversity, Equity, and Inclusion (DE&I):

DE&I has gained significant attention in recent years, and internal auditors should consider its implications in their work. This includes promoting diversity, equity, and inclusion in audit planning, fieldwork, and reporting, and ensuring that audit processes and decisions are free from biases and discrimination.

Example: An internal auditor ensures that audit assignments are allocated based on skills and expertise, rather than biases related to gender, race, or other protected characteristics. The auditor also considers the potential impact of audit findings on different groups of stakeholders, and communicates audit results in a fair and unbiased manner.

Environmental, Social, and Governance (ESG) Considerations:

ESG has become a significant focus for organizations and stakeholders, and internal auditors should consider the ethical implications of ESG issues in their work. This includes assessing and reporting on an organization’s ESG risks and performance, and considering the impact of ESG issues on the organization’s long-term sustainability.

Example: An internal auditor includes an assessment of the organization’s ESG risks and performance as part of the annual audit plan. The auditor evaluates the organization’s environmental impact, social responsibility initiatives, and governance practices, and reports findings to the audit committee and management for appropriate action.

 

Case Study:

Let’s consider a case study of Sarah, an internal auditor in a multinational manufacturing company, to illustrate how she demonstrates conformance with the IIA Code of Ethics:

Sarah is assigned to conduct an audit of the company’s procurement process, which involves evaluating the purchasing activities of the company’s various subsidiaries worldwide. During her audit, Sarah uncovers evidence of unethical behavior by a procurement manager in one of the subsidiaries. The procurement manager has been colluding with a supplier to inflate prices and receive kickbacks in return.

 

Sarah demonstrates conformance with the IIA Code of Ethics in the following ways:

Integrity:

Sarah maintains integrity by thoroughly investigating the evidence and documenting her findings accurately and objectively. She does not succumb to any pressure to withhold the findings or manipulate the evidence to favor the company or the procurement manager.

Objectivity:

Sarah remains impartial in her assessment of the evidence, despite the fact that the procurement manager is a long-time employee of the company and has a good reputation. She presents her findings objectively to the audit committee, without downplaying or exaggerating the severity of the issue.

Confidentiality:

Sarah handles the sensitive evidence securely and shares it only with authorized individuals, such as the audit committee and management, in accordance with the company’s confidentiality policies and applicable laws and regulations.

Competency:

Sarah demonstrates her professional competence by conducting thorough audit procedures to identify the unethical behavior of the procurement manager. She also stays up-to-date with relevant developments in the internal audit profession, including changes in laws and regulations related to procurement, to enhance her knowledge and skills.

Compliance:

Sarah ensures that her audit work is in compliance with the IIA Standards, such as the Standards for the Professional Practice of Internal Auditing and the Code of Ethics, as well as applicable laws and regulations related to procurement. She follows the company’s policies and procedures in conducting the audit, and reports any potential non-compliance issues to management.

Professionalism:

Sarah maintains a high level of professionalism in her interactions with auditees, management, and other stakeholders. She communicates respectfully and courteously, even when addressing sensitive and potentially confrontational issues during the audit process.

Sarah’s conformance with the IIA Code of Ethics enables her to conduct a thorough and independent audit, report her findings objectively and promptly, and maintain the confidentiality of sensitive information. Her professional competence, compliance with relevant laws and regulations, and professionalism in her interactions with stakeholders all contribute to the ethical conduct of her audit work.

 

Conclusion:

Demonstrating conformance with the IIA Code of Ethics is critical for internal auditors to maintain their professional integrity and uphold the highest ethical standards in their work. Internal auditors should adhere to the principles of integrity, objectivity, confidentiality, competency, compliance, and professionalism in all aspects of their audit engagements. They should also stay updated with new developments in the field of internal auditing, such as technology and data ethics, diversity, equity, and inclusion (DE&I), and environmental, social, and governance (ESG) considerations, to ensure that their audit practices align with evolving ethical standards. Through adherence to the IIA Code of Ethics, internal auditors can build trust and credibility with stakeholders and contribute to the effectiveness of their organizations’ governance, risk management, and internal control processes.