Code of Ethics Paper

Roger Armiger III

Accounting 436 - Internal Auditing

Due September 4, 2016

Code of Ethics (2-3 pages single-spaced)

Scenarios

1. Does including the CAE (Chief Audit Executive) in a company's stock option program violate the Code of Ethics? 

Violating the code of ethics can be a major professional problem. The CAE SHOULD NOT be included in a company’s stock option program because it does violate the Code of Ethics. In Section 2.2 of the Code of Ethics it states, “Shall not accept anything that may impair or be presumed to impart their professional judgment,” which in fact can be taken as a form of payment to sway the CAE’s judgement when an audit is being completed on that company. The company should not include the CAE because it is fair to say that this could cause the CAE to “look the other way,” when it comes to the companies financial statements or any other professional matter.

I arrived at this conclusion of it being a violation because this seems a bit like bribery to me. The CAE should separate themselves from the company, as an outsider to the company, therefore no misconduct would happen. The alternative I see that could happen, would be for the company to pay the CAE and nothing more. His/or Her services must be accounted for, but not by giving them ownership in the company for completing the audit.

2) After every audit, a survey about the audit work is sent to key management involved. 10% of each auditor’s annual bonus is determined based on the results of these surveys. Does this practice violate the Code of Ethics?

This question makes me think of when the company I work for currently has their annual physical inventory. With being a manager, I am heavily involved in the inventory process, and at the end of every inventory the person has us (the management staff for our store) complete their survey to be submitted. They always say hopefully everything went well so I don't get in trouble. We are lenient but always answer the survey honestly. I am pretty sure that their bonuses are based off these surveys completed as stated in this question. However I believe this does not violate the Code of Ethics. Because the auditor is not around (assuming) when this survey is completed we must assume every survey response was answered honestly.

Section 3.2 of the Code of Ethics states, “shall not use information for any personal gain,” and by gain I mean the 10% bonus the auditor would receive. However with the surveys being completed by key management, this would not violate the Code of Ethics because the auditor is not involved in the survey or result calculations.

3) An internal auditor assigned to audit a vendor’s compliance with product quality standards is the brother of the vendor’s senior manager of public relations. Would it be a violation to participate on the engagement?

YES! This stands out like a red flag for me and tells me this would deffentitly violate the Code of Ethics. In section 2.1 it states, “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,” and it clearly says relationship. Just because the auditor is related but not in a relationship with the senior manager of public relations for the company does not mean this is okay. The audit would need to be completed by someone who is not related to anyone and will have a true unbiased approach.

4) At a conference during lunch, an internal auditor engages in a discussion with the seven people at his table about their experiences with ERP implementations at their companies.  At his company the ERP implementation is still in progress. Would discussing this information be considered a violation of the Code of Ethics?

I do believe this would fall under section 3.1 of the Code of Ethics. That section states, “Shall be prudent in the use and protection of information acquired in the course of their duties,” and means that ERP is still in progress this should not be discussed. The others involved at this meeting could add information, but the internal auditor should not give out the information related to the ERP.