The Ethics of Internal Auditing and the Behaviour Expectations of Auditors and Audit Functions

In today's complex and rapidly evolving business landscape, the role of internal audit has become more critical than ever. Internal auditors provide independent and objective assurance and consulting services designed to add value and improve an organisation's  operations. However, the effectiveness and credibility of internal audit hinge significantly on the ethical conduct of its practitioners and the ethical culture of the audit function itself.  

This blog post delves into the ethics of internal auditing and the behaviour expectations placed upon auditors and their functions. We will explore the guiding principles that underpin this crucial profession, drawing upon the insights provided by the International Institute of Internal Auditors (IIA) Global Internal Audit Standards.

Ethics and Professionalism: The Foundation of Internal Auditing: As our colleague's notes highlight, the IIA's Global Internal Audit Standards provide a clear framework for the ethical and behavioural expectations of internal auditors and internal audit functions. These standards are organised into five domains, with Domain II specifically focusing on Ethics and Professionalism. This domain replaces the IIA's former Code of Ethics and outlines the expected behaviours for professional internal auditors.

Conformance to the principles and standards within this domain is paramount. It is the bedrock upon which trust in the internal audit profession is built. An ethical internal audit function fosters an ethical culture within the organisation and provides a solid basis for stakeholders to rely on the work and judgment of internal auditors.

It's important to note that all internal auditors are required to adhere to these standards of ethics and professionalism, even if their organisation has its own code of ethics. The IIA's standards set a baseline for ethical conduct within the profession.

The Role of the Head of Audit (HoA): The Chief Audit Executive plays a vital role in championing ethical conduct within the internal audit function. They are responsible for supporting and promoting conformance with the principles and standards in the Ethics and Professionalism domain. This includes providing opportunities for training and guidance on ethical matters. While the HOA may delegate certain responsibilities related to managing conformance, they ultimately remain accountable for the ethics and professionalism of the entire internal audit function.

The Five Principles of Ethics in Internal Auditing: he IIA's Global Internal Audit Standards articulate five core principles of ethics that are essential for effective internal auditing. Let's examine each of these principles and how they should be applied in practice:

Principle 1: Demonstrate Integrity: Integrity is the cornerstone of all other ethical principles in internal auditing. It encompasses honesty, professional courage, and a commitment to upholding ethical expectations. As the notes correctly point out, the integrity of internal auditors is fundamental to establishing trust and earning respect within the organisation and the wider profession.

This principle requires internal auditors to:

• Perform their work with honesty and professional courage.

• Understand, respect, meet, and contribute to the legitimate and ethical expectations of the organisation.

• Not engage in or be a party to any activity that is illegal or discreditable to the organisation or the profession, or that may harm the organisation or its employees.

Furthermore, the HOA must cultivate a work environment where internal auditors feel empowered to express legitimate, evidence-based engagement results, regardless of whether those results are favourable or unfavourable.

Principle 2: Maintain Objectivity: Objectivity is an unbiased mental attitude that allows internal auditors to make sound professional judgments and fulfil their responsibilities without compromise. An independently positioned internal audit function is crucial in supporting the ability of individual auditors to maintain this objectivity.

This principle mandates that internal auditors:

• Maintain professional objectivity when performing all aspects of internal audit services and actively manage potential biases.

• Recognise and avoid or mitigate actual, potential, and perceived impairments to objectivity.

• Disclose any impairments to objectivity to the appropriate parties.

The HOA is responsible for establishing methodologies to effectively address any identified impairments to objectivity.

Principle 3: Demonstrate Competency: To effectively perform their roles, internal auditors must possess or obtain the necessary competencies, including a thorough understanding of the IIA's Global Internal Audit Standards. They should only undertake engagements for which they have, or can acquire, the required skills and knowledge.

This principle emphasises that internal auditors must:

• Possess or obtain the competencies to perform their responsibilities successfully.

• Only engage in services for which they have or can attain the necessary competencies.

Each internal auditor is accountable for their own professional development. Additionally, the HOA must ensure that the internal audit function collectively possesses the competencies required to deliver the services outlined in the internal audit charter or has a plan to obtain those competencies.

Principle 4: Exercise Due Professional Care: Exercising due professional care means that internal auditors must approach their work with diligence and attention to detail. They need to consider the nature, circumstances, and requirements of each engagement, apply professional scepticism to critically assess and evaluate information, and ultimately act in the best interests of those receiving internal audit services.

This principle requires internal auditors to:

• Plan and perform internal audit services in accordance with the Global Internal Audit Standards.

• Exercise due professional care by assessing the specific nature, circumstances, and requirements of the services to be provided.

• Exercise professional scepticism when planning and performing internal audit services.

The HOA must establish methodologies to guide the internal audit function in a systematic and disciplined manner, ensuring consistent application of due professional care.

Principle 5: Maintain Confidentiality: Internal auditors often have access to sensitive and confidential information. Maintaining confidentiality is therefore paramount. This principle requires internal auditors to respect the value and ownership of the information they receive, using it only for professional purposes and protecting it from unauthorised access or disclosure, both internally and externally.

This principle dictates that internal auditors must:

• Follow relevant policies, procedures, laws, and regulations when using information. They must not use information for personal gain or in a manner contrary or detrimental to the organisation’s legitimate and ethical objectives.

• Be aware of their responsibilities for protecting information, understand and abide by the laws, regulations, policies, and procedures related to confidentiality, information privacy, and information security, and not disclose confidential information to unauthorised parties unless there is a legal or professional responsibility to do so.

The HOA has a responsibility to ensure that the entire internal audit function, including any individuals assisting the function, adhere to these same stringent protection requirements.

Conclusion: Upholding Ethical Standards for a Stronger Profession: The five principles of ethics outlined in the IIA's Global Internal Audit Standards are not merely aspirational ideals; they are fundamental requirements for the internal audit profession. By demonstrating integrity, maintaining objectivity, demonstrating competency, exercising due professional care, and maintaining confidentiality, internal auditors and their functions can build trust, foster ethical cultures, and provide valuable assurance and insights to their organisations.

Adherence to these principles is not just a matter of compliance; it is a commitment to professionalism and a dedication to serving the best interests of stakeholders. As the internal audit landscape continues to evolve, a strong ethical foundation will remain the cornerstone of a credible and impactful internal audit profession.