Student Forums CIA Part 1: Essentials of Internal Auditing Section I: Foundations of Internal Auditing Question ID: CIA 1194 1.52 (Topic: D. Conformance with the IIA Code of Ethics)

Question ID: CIA 1194 1.52 (Topic: D. Conformance with the IIA Code of Ethics)

  • This topic has 4 replies, 4 voices, and was last updated 6 months ago by Brian Hock.
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  • #216273

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    This forum is restricted to members of the associated course(s).

    Aryn Thedens
    Participant

    “A company with a whistleblowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of the corporate ethical code. Among the allegations against the auditors were the following:

    1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college.
    2. Auditor 1 owns stock in the employer company.
    3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor’s division was going to be closed down in about six months.”

    The question is How many of the allegations about Auditor 1 represent violations of the IIA Code of Ethics? And the answer is one, # 3 is the violation. However, I don’t understand why # 2 is not a violation of rule of conduct 2.1. I would think that owning stock could impair an unbiased assessment.

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  • #216287

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    SAMUEL ADDO ANKOMAH
    Participant

    I think the answer is 1 because you can not work in other firm during your hired working hours.this is because the code of ethics of the IIA Code of ethics has been violated.

    #216289

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    Brian Hock
    HOCK international

    This is a very common question. But, it is allowed for the internal auditor to own shares of the company they work for. This is different than the rules for the external auditor. The external auditor is not allowed to own one share of a client company.

    Think of it this way – the internal auditor should be motivated to do the best that they can for the company. To help the company be profitable, to grow, to reduce costs, to improve operations…. All of these would increase the share price of the company.

    A shareholder of the company wants exactly the same things. So, if the internal auditor is a shareholder, they will be motivated to do exactly the same things in both of those ‘roles’ – as an internal auditor and as a shareholder.

    So, it is not against the code of ethics for an internal auditor to own shares in the company that they work for.

    #230535

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    Dalini Bharath
    Participant

    Hello Brian,

     

    Further to the above, wouldn’t it be a violation of the Confidentiality Rule of Conduct as the IA may use information during engagements that may influence his decision on whether to purchase more shares or sell shares?

    Regards,

    Dalini

    #230537

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    Brian Hock
    HOCK international

    Hello, Dalini,

    As long as the purchase of the shares of the company does not violate insider trading laws (or any other laws) the internal auditor can purchase shares of the company without violating the confidentiality rule. But, if they are using inside information to purchase shares, that would be a violation of confidentiality.

    Brian

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