Ethics & The Auditor:
Roles, Responsibilities, and
Resolution
Lori Cox, CIA, CGAP
IIA El Paso Chapter
March 27, 2014
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Ethics & The Auditor
AGENDA
Ethics Defined
IIA’s Code of Ethics
Creating a Strong Ethical Climate – The
Auditor’s Contribution
Evaluating Ethics – The Auditor’s Role
5 Ethical Principles
Your Ethical Compass
Ethical Dilemmas – What to do.
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Ethics Defined
The discipline dealing with what is
good and bad and with moral duty
and obligation.
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Ethics Defined
A set of moral principles or values.
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Ethics Defined
Well-founded standards of right and
wrong that prescribe what humans
ought to do.
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Ethics Defined
Norms for conduct that distinguish
between acceptable and unacceptable
behavior.
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IIA Code of Ethics
 A blueprint for “ethical behavior” by
auditors.
 The purpose of the IIA Code of
Ethics is to promote an ethical
culture in the profession of internal
auditing.
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IIA Code of Ethics - Principles
1. Integrity
The integrity of internal auditors establishes trust and thus provides the basis for
reliance on their judgment.
2. Objectivity
Internal auditors exhibit the highest level of professional objectivity in gathering,
evaluating, and communicating information about the activity or process being
examined. Internal auditors make a balanced assessment of all the relevant
circumstances and are not unduly influenced by their own interests or by others in
forming judgments.
3. Confidentiality
Internal auditors respect the value and ownership of information they receive and do
not disclose information without appropriate authority unless there is a legal or
professional obligation to do so.
4. Competency
Internal auditors apply the knowledge, skills, and experience needed in the performance
of internal audit services.
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IIA Code of Ethics–Rules of Conduct
1. Integrity
Internal auditors:
1.1. Shall perform their work with honesty, diligence,
and responsibility.
1.2. Shall observe the law and make disclosures
expected by the law and the profession.
1.3. Shall not knowingly be a party to any illegal
activity, or engage in acts that are discreditable
to the profession of internal auditing or to the
organization.
1.4. Shall respect and contribute to the legitimate and
ethical objectives of the organization.
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IIA Code of Ethics–Rules of Conduct
2. Objectivity
Internal auditors:
2.1. Shall not participate in any activity or relationship
that may impair or be presumed to impair their
unbiased assessment. This participation includes
those activities or relationships that may be in
conflict with the interests of the organization.
2.2. Shall not accept anything that may impair or be
presumed to impair their professional judgment.
2.3. Shall disclose all material facts known to them that,
if not disclosed, may distort the reporting of
activities under review.
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IIA Code of Ethics–Rules of Conduct
3. Confidentiality
Internal auditors:
3.1. Shall be prudent in the use and protection of
information acquired in the course of their
duties.
3.2. Shall not use information for any personal gain
or in any manner that would be contrary to the
law or detrimental to the legitimate and ethical
objectives of the organization.
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IIA Code of Ethics–Rules of Conduct
4. Competency
Internal auditors:
4.1. Shall engage only in those services for which
they have the necessary knowledge, skills, and
experience.
4.2. Shall perform internal audit services in
accordance with the Standards.
4.3. Shall continually improve their proficiency and
the effectiveness and quality of their services.
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Why Ethics Important to Internal
Auditors
• It is the foundation of Governance.
• It guides decisions and actions.
• It is a key element of risk management
and internal control.
• It concerns everyone.
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Creating a Strong Ethical ClimateThe Auditor’s Contribution
• Set the example – go above and
beyond.
• Clearly communicate the organization’s
and the IA Activity’s core values.
• Empower staff to report unethical
behavior.
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Creating a Strong Ethical ClimateThe Auditor’s Contribution
• Monitoring and evaluation of ethical
climate in the organization.
• Internal training and publicity.
• Be consistent.
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Evaluating Ethics – The Auditor’s
Role
The internal audit activity should evaluate the design,
implementation, and effectiveness of the organization’s
ethics-related objectives, programs, and activities.
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Evaluating Ethics – The Auditor’s
Role
• Promote the need for ethical behavior throughout the
organization as part of the routine audit work.
• Make sure there is adequate expertise in house to
conduct ethics audits.
• Approach ethics audits with a clear understanding of
what is to be accomplished.
• Focus on proactive strategies (e.g. surveys, robust hiring
process).
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Evaluating Ethics – The Auditor’s
Role
Evaluate:
• Code of conduct.
• Strategies the organization uses to enhance its ethical
culture.
• The communication and demonstrations of expected
ethical attitudes by the organization’s leaders.
• Employees’, supplier’s, and customer’s understanding of
the requirements for ethical behavior when conducting
business.
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Evaluating Ethics – Tips
Consider outsourcing.
Watch out for issues regarding the organization’s
relationship with vendors.
Determine how the organization follows through with
employee questions and complaints.
Obtain management’s support.
Remember – EVERYBODY IS WATCHING.
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Ethical Compass “Evaluation”
Our perception:
We see ourselves as the guardians of trust
in our organizations – far more likely to
disclose ethical misconduct that to
misbehave ethically ourselves.
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Ethical Compass “Evaluation”
The Reality:
Bounded ethicality or reasoning limitations
in our minds can make us unaware of the
moral implications of our decisions.
(Blind Spots, Max Bazerman and Ann Tenbrunsel, 2011, Princeton University Press)
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Ethical Compass “Evaluation”
Consider…
Professionals…tend to view conflicts of interest
as an issue of deliberate dishonesty.
But…when individuals have a vested interest in
viewing a problem in a certain way, they are no
longer capable of objectivity.
(Blind Spots, Max Bazerman and Ann Tenbrunsel, 2011, Princeton University Press)
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Ethical Compass “Evaluation”
Consider…
We may foresee that we will behave in a way
that is consistent with our expectations for
ourselves. But when the time arises to make a
decision, we frequently behave the way we want
to behave.
(Blind Spots, Max Bazerman and Ann Tenbrunsel, 2011, Princeton University Press)
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Ethical Compass “Evaluation”
Consider…
(External) auditor bias develops at an
unconscious state where decisions are made
and prior to auditors reporting their
judgments. Unbiased auditors would be
questionable as long as auditors continue to be
hired and fired by the organizations they audit.
(Blind Spots, Max Bazerman and Ann Tenbrunsel, 2011, Princeton University Press)
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Ethical Compass “Evaluation”
So why do individuals fail to do what’s right even
when they “know” what is right?
Ethical breaches are often caused by
“Blind Spots”.
Our “Blind Spots” are exposed every day.
(Blind Spots, Max Bazerman and Ann Tenbrunsel, 2011, Princeton University Press)
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Recognizing and Addressing Blind
Spots
• Recognize that we are prone to behave in
ways that serve our own interests.
• Consider other perspectives.
• Challenge your own thoughts and decision
processes.
• Slow down and think about it.
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Recognizing and Addressing Blind
Spots
• Implement controls that force
contemplation of ethical decisions.
• Readily disclose potential conflicts.
• Remember that we are only as strong as our
weakest link.
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Ethical Dilemmas
Dilemmas are situations or problems
where a person has to make a difficult
choice.
An ethical dilemma is a problem where a
person has to choose between a moral and
an immoral act or between two moral
choices.
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Ethical Dilemmas
Employees must deal with pressures to
perform and help the company
succeed as well as personal
temptations to take the easy way out.
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Causes of Ethical Dilemmas
• Pressure from Management
• Internal Conflict
• Team Dynamics
• Ambition and Discrimination
• Negotiation Tactics
• Working Conditions
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Addressing Ethical Dilemmas:
Five Ethical Principles
Questions to ask when considering a course of
action…
Will this avoid causing harm?
Will it make things better?
Is it respectful?
Is it fair?
Is it a loving thing to do?
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Summary
• Defined ethics, and explored the IIA
Code of Ethics.
• Discussed ethical climate and
evaluating ethics.
• Discussed “blind spots” and ethical
dilemmas.
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Thank you!
Contact Information
lcox3@pima.edu
lkmcox@yahoo.com
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