CD2 – CD10:

Reference – IIA Code of Ethics

CD2:
Unacceptable, lack of honesty, diligence and responsibility (Integrity, rule 1). Should
have completely re-performed the bank reconciliation. Internal auditor cannot
assume that because the figures correspond the underlying calculations and recon is
correct.
CD3:
Disclose unlawful and unfair labour practices (Integrity, rule 2). Financial pressures
does not overrule legal requirements. Organisational needs and loyalty is not an
excuse to allow for the continuation on these practices.
CD4:
Unacceptable (Integrity, rule 3). Internal auditor may not be part of any illegal activity.
Two issues: illegal overtime working and secondly, non-compliance and misuse of
leave policies.
CD5:
Decline the engagement (Objectivity, rule 2) due to the family relationship.
CD6:
Decline the offer/gift (Objectivity, rule 2). Internal auditors may not accept any
excessive gifts as it might impair their objectivity.
CD7:
Unacceptable – (Objectivity, rule 3 and Integrity, rule 2). Financial pressure does not
overrule legal requirements.
CD8:
Unacceptable (Confidentiality, rules 1 and 2). He was not prudent in the use and
protection of information and used the information to obtain personal gain in the form
of commission.
CD9:
Decline the engagement (Competency, rules 1 and 2). The auditor is not competent
to audit the leave system yet and it can be assumed based on his qualification, that
he does not have knowledge on internal audit.
CD10:
As a professional internal auditor X has a responsibility to maintain his professional
competence through continuous professional development (Competency, rule 3).
The fact that his company won’t pay for it, is not a valid excuse.

CD11:
Verbal approval not acceptable. Mandate should always be in writing (approved
charter):
 Assurance to management: Compliance with organisational policies.
 Consulting: Give information to assist in deciding on a package.
Assurance that leads to consulting.
CD12:
 Position in the organisation not correct (not independent – refer to Standard
1110).
 Reporting line to CFO not acceptable (refer to Standard 1110) – Internal audit
activity must report functionally to the BOD/audit committee and
administratively to the CEO. Furthermore, the internal audit activity must have
direct contact with the BOD.
 Scope determined by CFO not correct (“free from interference in determining
the scope, performing the work and reporting the results” – Standard
1110.A1).
 1 year rule, assurance services (Standard 1130.A1) – perform and audit work
not allowed.
 Training, acceptable as a consulting engagement.
CD13:
 Must collectively have knowledge skills (Standard 1210), this is not currently
the case. Standard 1210.A1 – must obtain advice and assistance from an
external service provider.
 Decline engagement if a component and independent service provider cannot
be found. Discuss issue of competence and independence in class again.
CD14:
 Refer to Standards 1311 and 1312.
CD15:
 Not allowed to use word “in conformance with….” (Standards 1321 and 1322)
because external assessment hasn’t been performed. CFO is not a qualified
independent external assessor (Standard 1312).

QUESTION 1
 Yes, internal auditor A is in violation of the Code of Ethics. He is violating the
principle of Competency that states that the internal auditor should continually
improve his/her proficiency, effectiveness and quality of his/her service.
auditor A should pay for his membership fees and attend as many
courses/seminars as possible to improve his/her professional development.
 Yes, internal auditor B is in violation of the Code of Ethics. He is violating the
principle of Integrity which states that the auditor 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 organisation. The auditor should not
partake in activities of unlawful child labour. He should report such activities to
the relevant authorities.
 Yes, internal auditor C is in violation of the Code of Ethics. He is violating the
principle of Objectivity which states that the auditor shall not participate in any
activities that may impair or may presume to impair their unbiased
assessment. This participation includes those activities or relationships that
may be in conflict with the interest of the organisation. Auditor C should
decline to participate in the audit.
 Yes, internal auditor D is in violation of the Code of Ethics. He is in violation of
the principle of objectivity which states that the auditor shall not accept
anything that may impair or presume to impair his/her professional judgement.
Auditor D may conduct the training sessions but may not receive any gratuity.
 Yes, internal auditor E is in violation of the Code of Ethics. He is violating the
principle of Integrity which states that the auditor 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 organisation. Internal auditor E should
communicate his findings to the audit committee.
 Yes, internal auditor F is in violation of the Code of Ethics. He is violating the
principle of Confidentiality which states that the auditor shall be prudent in the
use and protection of information acquired in the course of his/her duties. It
also states that the auditor 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 organisation.
 No, internal auditor G is not in violation of the Code of Ethics as it is currently.
But if he does not disclose he would be violating the Code of Ethics. He would
be violating the principle of Objectivity which states that the auditor shall
disclose all material facts known to him/her that, if not disclosed, may distort
the reporting of activities under review. He would also be violating the
principle of Integrity which states that the auditor 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 organisation. Internal auditor G should
discuss his findings with the audit committee.
QUESTION 2
 The Chief audit executive assigned internal auditor X to an investigation for
which he didn’t have the necessary skills and experience. The chief audit
executive is therefore in violation of the Code of Ethics, specifically the
principle of Competency, which states that the auditor shall engage only in
those services for which he/she has the necessary knowledge, skills and
experience.
 Internal auditor X was assigned to an investigation with minimum experience.
He felt uncomfortable to approach other internal auditors for advice and
assistance. He is therefore in violation of the Code of Ethics, specifically the
principle of Competency, which states that the auditor shall engage only in
those services for which he/she has the necessary knowledge, skills and
experience.
 Internal auditor X discussed the investigation with his sister, who is part of the
human resource division that is being investigated. He is therefore in violation
of the Code of Ethics, specifically the principle of Objectivity, which states that
the auditor shall not participate in any activity or relationship that may impair
or be presumed to impair his/her unbiased assessment. This participation
includes those activities or relationships that may be in conflict with the
interests of the organisation.
 The sister of internal auditor X shared information with him that indicates
fraudulent and/or irregular activities taking place within the human resource
division. She then asked him to keep that information confidential. If internal
auditor X keeps such information to himself, he would be in violation of the
Code of Ethics, specifically the principle of Objectivity, which states that the
auditor shall disclose all material facts know to him/her that, if not disclosed,
may distort the reporting of activities under review.
 Internal auditor X accompanied his sister, her human resource colleagues and
a software supplier to an all-expenses paid weekend away in Cape Town. He
is therefore in violation of the Code of Ethics, specifically the principle of
Objectivity, which states that an auditor shall not accept anything that may
impair or be presumed to impair his/her professional judgement.
 After returning from Cape Town, internal auditor X indicated no instances of
fraudulent or irregular activities taking place in the human resource division, in
his progress report. He is therefore in violation of the Code of Ethics,
specifically the principle of Integrity, which states that the auditor 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 organisation. He is
also violating the principle of Objectivity, which states that an auditor shall
disclose all material facts known to him/her that, if not disclosed, may distort
the reporting of activities under review.