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

1. Richard Cascarino CISM,
CIA, ACFE, CRMA
Ethics for Internal
Auditors

2. 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
2

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8. 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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9. 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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10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. POLLING QUESTION

16. 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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17. A Body of Ethics
The hallmark of a profession
A profession characterised 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
17

18. 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
18

19. Applicable areas within Internal
Audit
Attitudes and actions relative to the organisation
• 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
19

20. POLLING QUESTION

21. 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
21

22. 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
22

23. 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
23

24. 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
24

25. 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
25

26. 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
26

27. 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
27

28. POLLING QUESTION

29. Professional Practices Framework
• Code of Ethics
• Attribute, Performance, &
Implementation Standards
29
Ethics &
Standards
Practice
Advisories
Development &
Practice Aids
•Books
•Research Studies
•Seminars
•Conferences
• Professional Practices
Guidance, Representation

30. 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 30

31. 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
31

32. 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
32

33. 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
33

34. 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
34

35. Acceptance of Gifts
From
Employees
Clients
Customers
Suppliers
Business Associates
35

36. 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
36

37. POLLING QUESTION

38. 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
38

39. 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
39

40. 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
40

41. Strive for Improvement
Continuous
Improvement in Proficiency
Improvement in the Quality of Service
Efficiency
Effectiveness
Economy
Ongoing Professional Development
Training
Reading
Conferences
41

42. Maintenance of Standards
Competence
Morality
Dignity
Abiding by the Bylaws of the Institute
Upholding the Objectives of the
Institute
42

43. POLLING QUESTION

44. 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

45. 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

46. 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

47. POLLING QUESTION

48. QUESTIONS?
Any Questions?
Don’t be Shy!

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