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Building a Better Auditor: Ethics in Action

Blogs Chauke Deroul, FIIASA, PIA Mar 11, 2024

The success of any internal audit function depends equally on the compliance of the internal audit function with the Global Internal Audit Standards and the ethical competencies of individual internal auditors.

Internal auditors need to maintain ethical behavior at all times, as they have been entrusted with both assurance and advisory roles by the board of directors, management, and the public. The trust placed in the internal auditing profession by various stakeholders underscores the importance of adhering to ethical standards in all circumstances. This assertion underpins the purpose of internal audit described in the new Global Internal Audit Standards.

In addition, Standards 1.1 Honesty And Professional Courage and 1.2 Organization’s Ethical Expectations draw attention to the importance of avoiding conflicts of interest to maintain impartiality and promote ethical behavior within the organization. This is significant because internal auditors must be change agents, enhancing the general ethical culture of the organization. Employees are more likely to embrace and adopt ethical behavior when they witness it in action, leading to a positive ethical environment throughout the organization.

However, internal auditors often face ethical dilemmas that put their ethical decision-making skills to the test. For instance, they may encounter situations where they are under pressure to ignore or downplay control issues that they have discovered during an audit. Sometimes auditors are asked by directors or management to deliver optimistic results, even if it means sacrificing the accuracy and reliability of their audit conclusions. To effectively respond to these dilemmas, internal auditors must be competent in ethical decision-making, which necessitates engaging in continuous ethics training, certification programs, and professional development. Also needed is a strong understanding of various ethical decision models.

One prominent ethical decision model was developed by James Rest in 1986. Rest was an American psychologist who specialized in moral psychology and development. Rest’s model consists of four key steps: identification, analysis, motivation, and implementation.

Here are steps internal auditors can take, based on Rest’s model. For this ethical decision-making model to be effective, it is important to highlight that the first step in the model must be completed successfully. Otherwise, the other three steps will not occur.  

  1. Internal auditors must first acknowledge the existence of an ethical dilemma before they can act or make an ethical judgment.
  2. Once they have established that an ethical dilemma exists, they must determine which ethical course of action would be morally right.
  3. Next, they must consider their motive for taking action — why they should act.
  4. Finally, they should take action based on ethical principles, such as the ones outlined in Domain II of the Global Internal Audit Standards: Demonstrate Integrity, Maintain Objectivity, Demonstrate Competency, Exercise Due Professional Care, and Maintain Confidentiality.

Ethics encompasses not only the determination of right and wrong but also involves intricate considerations and moral evaluations of why certain actions are deemed acceptable or unacceptable. Hence, internal auditors need to acquire the knowledge and understanding of different ethical concepts, such as virtue ethics and deontology ethics, which will help internal auditors determine acceptable behavior and contribute to the understanding of what is right and wrong. While virtue ethics and deontology ethics differ in their etymology principles and approaches, they both provide guidance in ethical decision-making.

Virtue ethics focuses on character development and the cultivation of virtuous traits, emphasizing the importance of intentions and motives.

Deontology, on the other hand, looks at the adherence to moral duties and universal principles, prioritizing intentions over outcomes.

Lastly, Ubuntu involves recognizing that the internal auditor’s decisions and actions have an impact on stakeholders such as employees, customers and the public interest. It also, promotes compassion, unity, and collective organizational well-being. While assurance and advisory services are the primary objectives of internal auditing, embracing and understanding the Ubuntu concept will help individual internal auditors and internal audit functions with effective ethical decision-making, ethical advocacy, and the ability to serve the public interest.

The knowledge of ethical concepts serves as an internal source, such as an internal auditor's values, and plays a significant role in how they respond to ethical dilemmas or pressures. However, these values may be influenced by external factors such as the control environment within the organization and the pressure to compromise one's personal values. Despite this, internal auditors can use ethical concepts to align their actions with their personal values and gain greater awareness, without necessarily adhering to a specific set of values.

Internal auditors play a pivotal part in fostering ethical behavior within organizations. They must uphold ethical principles, such as honesty, objectivity, confidentiality, and professionalism to preserve the trust of stakeholders. Amid multiple challenges, internal auditors must relentlessly develop competencies in ethical decision-making. By complying with the Internal Audit Global Standards and applying an ethical decision-making model, internal auditors can enjoy the status of being ethical guardians. By thus elevating the status of internal auditing within the organizations, they can help shape business practices that might lead to the sustainability of their organizations.

Chauke Deroul, FIIASA, PIA

Chauke Deroul is a lecturer on audit and assurance at Nelson Mandela University, based in Gqebegha, South Africa.