From time-to-time internal auditors are faced with situations which call for them to make an ethical decision. In addition, they may, in the middle of auditing, come across circumstances which themselves appear to be violations of a corporate code-of-conduct. Several laws now specifically state that internal auditors, in terms of the act, will be bound by the IIA Code of Ethics. This webinar explores the IIA Code of Ethics as it applies to everyday situations the auditor may encounter. The module is designed to provide the participants with an in-depth knowledge of: Ethics theory The IIA Code of Ethics Applicable areas within Internal Audit Reporting of material facts Corporate Codes of Conduct Auditing Corporate Ethics Webinar contents will include: Classes of Ethics The role of business Employee ethics Honesty, Objectivity and diligence Conflicts of Interest Reporting of Material Facts Corporate Codes of Conduct Corporate Social Responsibility

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Richard Cascarino CISM,
CIA, ACFE, CRMA
Ethics for Internal
Auditors
About Jim Kaplan, CIA, CFE
 President and Founder of AuditNet®,
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ABOUT RICHARD CASCARINO,
MBA, CIA, CISM, CFE, CRMA
• Principal of Richard Cascarino &
Associates based in Colorado USA
• Over 28 years experience in IT audit
training and consultancy
• Past President of the Institute of
Internal Auditors in South Africa
• Member of ISACA
• Member of Association of Certified
Fraud Examiners
• Author of Data Analytics for Internal
Auditors
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Today’s Agenda
Major terms involved in ethics and business
ethics in particular
Levels of business at which ethics is evaluated
and the core issues involved
Why ethics is necessary on the personal and
organisational level
Distinguish between ‘morality’ and ‘ethics’
Why IIA professional ethics and professional
virtues are important.
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Overall Ethical Values
Honesty
Integrity
Promise-keeping
Fidelity
Fairness
Caring
Respect
Responsibility
Striving for Excellence
Accountability
Ethics Theory
What are Ethics?
Go beyond moral principles
Designed for both practical and idealistic purposes
"above the law but below the ideal"
(Kell & Zeigler)
A professional way of life
Wheelwright's three key elements
Ethics involve questions requiring reflective choice
Ethics involve guides of right and wrong
Ethics are concerned with consequences of decisions
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Ethics Theory
 Religious Ethics – an authoritative rule book to tell us what
rules to follow.
 Duty Ethics - Fulfill your obligations. Duties and rights are
two sides of the same coin.
 Utilitarianism – There is one and only one supreme moral
principal – that we should seek the greatest happiness of the
greatest number. Maximize happiness. Jeremy Bentham and
John Stuart Mill (1800).
 Kant’s Approach To Ethics – Can your actions be
consistently generalized? Ask yourself “What if everyone did
that?”. According to Kant, if something is wrong, it is always
wrong!
In Kant’s view, happiness does not equal morality. Only a
good will has ultimate moral value. Moral rules should be
universal.
Special pleading – rationalizing to ourselves
The golden rule - treat others the way you
wish to be treated
Veil of ignorance - imagine the situation
from both points of view
Kant’s Approach to Ethics
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Ethics in Differing Religions
Common heritage going back a thousand
years before Christ
have important internal distinctions and structures
Orthodox Judaism, Reform or Progressive Judaism
Roman Catholic, Eastern Orthodox, Anglican, Protestant and
Pentecostal ... and others
Four shared features of the ethics of Jewish and Christian
people.
Jewish Ethics
Grounded in the Torah
Mitzvoth (ethical commandments)
The golden rule
That which is hateful unto you, do not do unto others. Thou
shalt love thy neighbour as thyself
The Talmud
Prophecy.
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Christian ethics
Ethics concerned with conscientiously living a whole
Christian life
 Loving invitation and free response rather than law and duty
Jesus of Nazareth
Core moral guidelines in Christianity
Natural law
Sources of moral guidance
 The Bible
 Reason
 Tradition
 Experience
Modern moral maze.
Islamic ethics
Origins in Arabia
Islam means peace – engaged surrender or
submission to God or Allah’s will
Central belief: acceptance of God’s oneness and the
prophethood of Muhammad
 Sources of moral guidance
• Qur’an
• Muhammad’s example
• shari’a (Islamic law)
Basis for evaluating ethical behaviour: God’s will
Action-based
Modern debate for Muslims today.
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Hindu ethics
Origins in India – oldest of Indian traditions
The eternal way
A richly diverse value system – tolerant & flexible
Deeds count more than sameness of belief
 Life’s goals
 Karma (actions)
 Dharma (right or appropriate actions)
Sources of ethics
 Various scriptures, such as Great Epic, the popular Ramayana and the Gita
Some controversial earlier practices
Modern revitalising movements.
POLLING QUESTION
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Internal Auditors must balance
Their personal feelings and moral
standards
The IIA code of ethics
Applicable statutes
An empathetic approach to attitudes
The auditee's
Management's
Society's
The law's
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A Body of Ethics
The hallmark of a profession
A profession characterized by
Acceptance by society
Service to society
A common body of knowledge
A body of standards of the technical requirements and
methodology of the profession
A body of ethics
The imposition by itself or by society when the ethics or
standards are not upheld
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Ethics Therefore
Help establish credibility of the members of the
profession
Establish public confidence in the profession as a whole
Establish a common guideline for measurement
Allow judgement by peers
To be effective they must
 Be known
 Be enforced vigorously and objectively
 Be seen to be effective
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Applicable areas within Internal
Audit
Attitudes and actions relative to the organization
• Management
• Auditees
• Others
Attitudes and actions relative to other auditors
Professional proficiency and competence
Other ethical issues
Integrity
Objectivity
Independence
Acts bringing the profession into disrepute
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POLLING QUESTION
Ethics and Business
Amoral
Business is business and law = ethics
Ethically unaware (naïve)
Business exists only to make money
Immoral
If you don’t get caught it isn’t wrong
Unethical for the firm / Unethical against the firm
The Moral Employee
Ethically aware
Proactive
Code of conduct
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Classes of Ethics (1)
Imperative Principle
Requires strict compliance with the code
• No choices
• No rules with exceptions allowed
• No "lesser of two evils"
May cause problems when two or more provisions appear to be
at odds
May cause problems when the ethical principle produces results
out of proportion to the materiality
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Classes of Ethics (2)
Utilarianism
Course of action bringing most good to most people
Primary support of social ethics in countries
Act utilarianism
• Acts must lead to the greatest good for the greatest number
• If rules do not assist this, they are to be broken
Rule utilarianism
• Firm and publicly advocated moral rules
• All acts must conform to these
• No special cases
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Classes of Ethics (3)
Deontological Ethics
Concern is on the consequences of acts
Actions result from the concepts of duty
Principles are "independent of each person's conscience" (Kant)
Consistency is a requirement and conscience may condone acts
which could lead to societal disintegration
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Role of Business
Classical theories
Plato, Aristotle and Adam Smith
Business has no relationship to societal goals and social
objectives
"The purpose of business is business" (Friedman)
The Ethics Egoist
Achieving egoistical goals
Following established rules for the benefit of all
Social Responsibility
Held by "Moralists"
Business should have special goals
Business as a good citizen (Kant)
Social responsibilities beyond profits
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Ethics of Employees
The Duty of Obedience
A duty to obey all reasonable directions
No obligation to perform illegal or unethical acts
The Duty of Loyalty
Acts should be performed only in the interest of employers
• Only when acting as an employee
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The Duty of Confidentiality
Information acquired as a result of the
organization's operations may not be used
to further the interests of the employee or
another
Does not apply if the information is general
knowledge
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Codes of Conduct
Do not enforce "ethical" behavior
Serve as a means of expelling non-conforming members
of a population
Should be in place for all companies (recommended in
1987 by the Treadway Commission and 1994 by King)
Should be enforced
Internal Auditors can assist management in its design
Can then be reviewed and appraised by Internal Audit
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POLLING QUESTION
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ETHICAL GUIDELINES
FOR AUDIT PROFESSIONALS
Special Aspects of Professional Ethics
 Internal Audit Professionals:
 Are experts in their field,
 Know customers rely on their knowledge, expertise, and honesty,
 Understand their products (and related risks) affect many people,
 Follow good professional standards and practices,
 Maintain an expected level of competence and are up-to-date on
current knowledge and technology, and
 Educate the non-audit professional.
“He or she must go beyond the
rules, thinking about why the
rules are necessary and written
as they are – in other words, the
substance behind the form.”
Ethical Issues in the Practice of Accounting, p.38 [ref. 2]
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Professional Practices Framework
• Code of Ethics
• Attribute, Performance, &
Implementation Standards
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Ethics &
Standards
Practice
Advisories
Development &
Practice Aids
•Books
•Research Studies
•Seminars
•Conferences
• Professional Practices
Guidance, Representation
IIA Code of Ethics
I Honesty, objectivity and diligence
II Loyalty
III No discreditable acts
IV Conflict of Interest
V Acceptance of gifts
VI Professional competence
VII Compliance with The Standards
VIII Confidentiality
IX Reporting of material facts
X Strive for improvement
XI Maintenance of standards 36
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Honesty, Objectivity and
Diligence
Primary requirements
Honesty
Professional Opinions, truthfully expressed
Not lying, cheating or stealing
Objectivity
Without fear or favor
Uncoloured by the auditor's personal feelings or opinions
Diligence
Persistence of effort
Following up on findings
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Loyalty
To
 Organization
 Management
 Auditee
 Public
Placing the organization's interests first
Loyalty does not require the Internal Auditor to break
the law
 Non-disclosure of illegal activities
 Becoming party to an illegal act
It does, however, preclude whistle-blowing except where
the Internal Auditor has been so tasked
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Discreditable Acts
Internal Auditors shall not knowingly
participate in:
Acts which are discreditable to the organization
Acts which are discreditable to Internal Auditing
Discrediting
Anything which leads to a loss of repute
Anything which causes doubt
Includes
Unprofessional activities
Acts directly against the interest of the organisation
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Conflicts of Interest
Activities in conflict with the interests of their
organizations
Activities which could prejudice the Auditor's ability to
carry out his responsibilities
 Actual
 Perceived
May include
 Auditing in areas where there was a recent line management role
 Auditing in areas where there will in the future be a line role
 Auditing in areas where there is a family connection
 Auditing in areas where there is a vested interest
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Acceptance of Gifts
From
Employees
Clients
Customers
Suppliers
Business Associates
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Items of Value
Items which could impair objectivity
 Actual
 Presumed
Previously "Items which could not be utilized
in one day"
Previously acceptable if the gift had
management's blessing
Now only non-valuable and promotional items
freely available may be accepted
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POLLING QUESTION
Professional Competence
Internal Auditors shall be professionally
competent
Refuse work in areas where they are not
competent
Competent
Knowledge
Skills
Disciplines
Does not imply infallibility
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Confidentiality
Prudence in the use of information
acquired
Not for personal gain
Not for the gain of others
Not in any manner contrary to the law
Not in any manner detrimental to the welfare of the
organization
This includes "Whistle-blowing" where not
specifically tasked to do so
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Reporting of Material Facts
Non-concealment of material facts
Prevention of distortion of reports of
operations
Non-concealment of unlawful practices
Material
Important
Essential
Non-trivial
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Strive for Improvement
Continuous
Improvement in Proficiency
Improvement in the Quality of Service
Efficiency
Effectiveness
Economy
Ongoing Professional Development
Training
Reading
Conferences
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Maintenance of Standards
Competence
Morality
Dignity
Abiding by the Bylaws of the Institute
Upholding the Objectives of the Institute
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EVALUATING ETHICAL CHOICES
Is the action you have arrived at one that lives up to your
sense of moral integrity?
[Could I do this and still look at myself in the mirror]
Would it be the action chosen by someone you consider
a moral model?
[Could I feel good about telling my mother (father, minister, spiritual advisor,
spouse, etc.) I took this action]
Would you be comfortable if the action or its results were
made public?
[What if this became headline news?]
POLLING QUESTION
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The Ethics Audit
Systematic evaluation of an organization’s
ethics program and performance to
determine whether it is effective
Regular, complete, and documented measurements of
compliance with policies and procedures
Can be a precursor to establishing an ethics program
Helps to identify the firm’s current ethical standards, policies,
and risk areas
Benefits of an Ethics Audit
Identify potential risks and liabilities and
improve legal compliance
Can be key in improving organizational
performance
Improved relationships with stakeholders
Pressure to account for actions in areas including corporate
governance, ethics programs, customer relationships, employee
relations, environmental policies, and community involvement
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ASKING KEY QUESTIONS
What are the core values and beliefs of my organization?
Whose values, beliefs and interests may be at risk in this
decision?
Who will be harmed or helped by this decision or by the
decision of my organization?
How will my own or my organization’s core values and
beliefs be affected or changed by this decision?
How will I and my organization be affected by this
decision.
Risks in Ethics Auditing
Ethics audits may uncover ethical problems
that a company cannot remedy
Stakeholders may be dissatisfied with the
information
Conducting the audits is a financial and
record keeping burden
No guarantee that auditing is the solution to
ethics concerns
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POLLING QUESTION
QUESTIONS?
Any Questions?
Don’t be Shy!
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