Summary AUI3702 Notes 2021.

The aim of the International Professional Practices Framework (IPPF), developed and published by the Institute of Internal Auditors (IIA) is to ensure professionalism and consistency in the practice of internal auditing. Internal auditors demonstrate their professionalism by adhering to the IPPF. This IPPF diagram illustrates that internal auditors must adhere to the stipulations of The definition of internal auditing, the International Standards and the Code of Ethics, And that it is strongly recommended that they follow the guidance provided in the Position Papers, Practice Advisories and Practice Guides. STUDY UNIT 1.1: IIA CODE OF ETHICS The IIA Code of Ethics firstly identifies four principles that are relevant to the Profession, Secondly, for each of the principles identified above, the IIA Code of Ethics stipulates certain rules of conduct which describe behavioural norms expected of internal auditors. 4 Principles Internal auditors are expected to apply and uphold • Integrity The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment. Rules of conduct of this principle: 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. • Objectivity Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the activity or process being examined. Internal auditors make a balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests or by others in forming judgments Rules of conduct of this principle: 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. • Confidentiality 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. Rules of conduct of this principle: 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. • Competency Internal auditors apply the knowledge, skills, and experience needed in the performance of internal auditing services. Rules of conduct of this principle: 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. Principle Rules of conduct What you should NOT do What you should do Integrity Perform work with honesty, diligence and responsibility The internal auditors use an unrevised audit programme, used three years ago, to conduct an organisation-wide audit of credit sales. The internal auditors perform a detailed risk assessment and identify the key controls with regard to credit sales before they decide on the tests to be performed. Observe the law and make disclosures expected by law or the profession An internal auditor accepts an excuse from a manufacturing site manager for ignoring regulations regarding the treatment of hazardous waste and mentions nothing in his final report. After noticing that consideration is not given to regulations with regard to the treatment of hazardous waste on a manufacturing site, the internal auditor immediately issues a written notification to a person with sufficient responsibility within the organisation to take suitable action and follows up on the actions taken. The finding and any actions taken are included in the final audit report. Not be part of illegal activity or acts discreditable to the profession or the organisation In loyalty to her organisation who is experiencing financial difficulty, a chief audit Executive (CAE) ignores the scheduled audit of the final tax return for the current tax year, knowing that management is understating taxable income. Realising that management intends to understate taxable income, the internal Auditor expresses her dissatisfaction and issues an interim report to the directors and audit committee stating that this would be against the law and to the detriment of the organisation as severe penalties could follow. Respect and contribute to legitimate and ethical objectives of the organisation An internal auditor joins a protest action against an organisation after instituting a time management clock-in system for administrative staff. The internal audit activity publishes an informative article on the organisation’s intranet, setting out the advantages of introducing a time-management clock-in system for administrative staff. Objectivity Not participate in any activity or relationship which may impair unbiased assessment or which is in conflict with the interests of the organisation An internal auditor is assigned to an audit of controls in the procurement section, which is headed by his father. The internal auditor reports his relationship with his father who is heading the procurement section and further assignments of staff are made with due consideration of this information. Not accept anything which may impair professional judgement An internal auditor fights to be assigned to the annual audit of his organisation’s retail outlet in the North West province as he loves hunting and always gets an opportunity to hunt on the branch manager’s farm during one of the weekends falling within the audit. An internal auditor rejects an offer to go hunting with the branch manager on his farm, knowing that this could be seen as an impairment of his objectivity when auditing controls at the branch. Disclose all known material facts that, if not disclosed, may distort the reporting of activities under review Since everyone in the organisation is aware of the IT department’s inability to arrange suitable back-up facilities for the financial systems of the organisation, the internal auditor makes no mention of the fact in his report following an audit of general IT controls. The auditor includes a finding on the lack of suitable back-up facilities in his audit report, explaining the possible effect of the shortcoming and recommending the necessary actions to be taken. He also includes any comments from IT management in response to the finding. Confidentiality Be prudent in the use and protection of information acquired While auditing controls over wage payouts, an auditor finds that some controls have been circumvented. She discusses her finding and the possibility of fraud with her colleague in the canteen over lunch. While auditing controls over wage payouts, an auditor finds that some controls have been circumvented. She discusses her finding and the possibility of fraud with the internal audit manager in his office. Not use any information for personal gain and/or that is contrary to the law or detrimental to the organisation During an audit of procurement controls an auditor realises that he buys printing cartridges for his own private use for 15% less than the lowest of three quotes obtained by the organisation. He convinces the procurement clerk to obtain a quote from the supplier he buys from and arranges with the supplier to pay him a 5% commission on all thecartridges sold to the organisation. During an audit of procurement controls an auditor realises that he buys printing cartridges for his own private use for 15% less than the lowest of three quotes obtained by the organisation. He mentions the fact to the procurement manager to investigate further. Engage only in those services for which they have the necessary knowledge, skills and experience An internal audit activity appoints a chartered accountant who has recently completed her articles with an auditing firm and assigns her to lead an audit of An internal audit activity appoints an experienced IT auditor who has recently become qualified as a Certified Information Systems Auditor, and assigns