Professionalism

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ACG 4671 Internal Auditing
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• CHAPTER 2
• The Professional Practices Framework Ethics and
  Standards of Practice

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Overview

• Importance
• Ethics
• Professional Practice Standards

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Importance

• To be a profession, a field of practice must have
  standards to govern practices, procedures, and
  ethics
• Professional Practices Framework (PPF)
• Code of Ethics
• International Standards for the Professional
  Practice of Internal Auditing
• Practice Advisories
• Other Guidance

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IIA Code of Ethics

• IIA Code of Ethics contains 4 Principles and 12
  Rules of Conduct
• Principle Rules of Conduct
• Integrity (4) Section 1.1-1.4
• Objectivity (3) Section 2.1-2.3
• Confidentiality (2) Section 3.1-3.2
• Competency (3) Section 4.1-4.3
• Applies to all internal auditors and internal
  audit functions

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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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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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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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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 auditing services in
  accordance with the International Standards for
  the Professional Practice of Internal Auditing.
• 4.3 Shall continually improve their proficiency
  and the effectiveness and quality of their
  services.

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Internal Auditing Standards Board

• The IIA develops and issues standards that define
  the basic practice of internal auditing.
• The board lists these rules in the International
  Standards for the Professional Practice of
  Internal Auditing (Red Book).

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Objectives of the Red Book

• Outline basic principles that represent the
  practice of internal auditing.
• Provide a framework for performing and promoting
  a broad range of value-added internal audit
  activities
• Establish the basis for the measurement of
  internal audit performance
• Foster improved organizational processes and
  operations

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Authority of the Red Book

• Does not have same legal authority as other
  standards, but represents the only recognized set
  of performance standards for internal auditors
• Applies to all internal auditors and internal
  audit functions
• Used by courts in cases involving the adequacy of
  the performance of internal audit activities

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Standard Types

• Code of Ethics
• Attribute Standards Performance Standards
• Consulting Implementation Assurance
  Implementation
• Standards Standards
• Practice Advisories
• Other Guidance

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Standards Classification Schemes

• 1000 Level (Attribute)
• Addresses the characteristics of organizations
  and parties performing internal audit activities
• 2000 Level (Performance)
• Describes the nature of internal audit activities
  and provides quality criteria against which the
  performance of these services can be evaluated.

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Attribute Standards (1000 series)

• 1000 Purpose, Authority, and Responsibility
• 1100 Independence and Objectivity
• 1200 Proficiency and Due Professional Care
• 1300 Quality Assurance and Improvement program

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Performance Standards (2000 series)

• 2000 Managing the Internal Audit Activity
• 2100 Nature of Work
• 2200 Engagement Planning
• 2300 Performing the Engagement
• 2400 Communicating the Results
• 2500 Monitoring Progress
• 2600 Resolution of Managements Acceptance of
  Risk

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Using Red Book Coding

• 1130.C1
• Attribute Independence Impairments to
  Consulting First
• and Objectivity Independence
  Consulting
• or Objectivity Standard
• Internal auditors may provide consulting services
  relating to operations for which they had
  previous responsibilities

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Practice Advisories and Other Guidance

• Practice Advisories
• Provide detailed interpretations of Standards
• Are not mandatory
• Other Guidance
• Text books
• Research
• Corporate or industry guidelines
• Other Standards
• GAO
• ISACA
• INTOSAI