IIA Code of Ethics: Principles & Rules of Conduct

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

As the international professional organization for auditors, the Institute of Internal Auditors (IIA) develops standards for the auditing industry. In this lesson, we will introduce and discuss the Code of Ethics found in those standards.

The Institute of Internal Auditors' Code of Ethics

While every organization should have a Code of Ethics and standards for professional behavior, it is especially important for internal auditors. The Institute of Internal Auditors (IIA) is an organization that sets standards for the internal audit community and which grants many of the certifications related to internal audit. They have developed and published a Code of Ethics for the audit industry.

Auditors in an internal audit department need to abide by the Code of Ethics if they want to write in their reports that they comply with the standards set forth by the IIA, which gives their work credibility.

The IIA's Code of Ethics has two sections: the principles and their corresponding rules of conduct. There are four principles and 2-4 rules of conduct related to each one that auditors are responsible for upholding and obeying. The remainder of this lesson will focus on these principles and rules.

The Four Principles

Integrity

The IIA's statement on integrity reads, 'the integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment.' When auditors issue reports and opinions about the processes, practices, and policies of their organization, stakeholders are putting a lot of trust in the integrity of the internal auditors.

The trust placed in auditors is critically important, as can be seen when reading the rules of conduct related to integrity. The four rules state that internal auditors must do their work with 'honesty, diligence, and responsibility,' and 'respect and contribute' to their ethical goals. They also make it very clear that internal auditors must not do anything illegal, or even anything that may put a stain on their profession.

Objectivity

When it comes to objectivity, the IIA's statement is all about '…a balanced assessment of all the relevant circumstances…' after they practice 'the highest level of professional objectivity in gathering, evaluating, and communicating information.' Internal auditing is not about trying to influence decision makers based on the auditors' opinions, but looking at information and evidence without bias, and making sound recommendations based on the evidence and analysis.

The three rules related to objectivity are focused on avoiding conflicts of interest, such as 'not accepting anything that may impair…their professional judgment.' In some audit departments, auditors are not even able to let a client pay for their coffee or lunch, just to ensure there is no appearance of any biased assessment. If there is anything like this, or even a relationship with the client such as being previous colleagues, or friends on the golf course, auditors should report it to the Chief Audit Executive so they can make the decision of whether or not the auditor should be assigned a certain project.

Confidentiality

To do their jobs correctly, auditors often need access to sensitive and confidential information. The Code of Ethics regarding confidentiality reads: '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.' This includes the information they may obtain through interviews, whistle blowers, or through their access to sensitive information.

There are two rules related to the confidentiality principle. The first is that auditors need to be 'prudent' with the information they gain. Second, it is critical that auditors don't use that information for their own benefit.

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