Part 1 SU 1.6

Which of the following actions taken by a chief audit executive (CAE) could be considered professionally ethical under The IIA’s Code of Ethics?

• The CAE decides to delay an engagement at a branch so that his nephew, the branch manager, will have time to “clean things up.”

• To save organizational resources, the CAE cancels all staff training for the next 2 years on the basis that all staff are too new to benefit from training.

• To save organizational resources, the CAE limits procedures at foreign branches to confirmations from branch managers that no major personnel changes have occurred.

• The CAE refuses to provide information about organizational operations to his father, who is a part owner.

An internal auditor is performing services in a division in which the chief financial officer is a close personal friend, and the internal auditor learns that the friend is to be replaced after a series of critical labor negotiations. The internal auditor relays this information to the friend. Has a violation of The IIA’s Code of Ethics occurred?

• No. The use of the confidential information resulted in no personal gain to the internal auditor.

• No. The internal auditor was just being honest with his or her friend

• Yes. The internal auditor had a conflict of interest with the organization

• Yes. The internal auditor was not prudent in the use of information acquired in the course of his or her duties

Which of the following is permissible under The IIA’s Code of Ethics?

• Disclosing confidential, engagement-related information that is potentially damaging to the organization in response to a court order

• Using engagement-related information in a decision to buy an ownership interest in the employer organization

• Accepting an unexpected gift from an employee whom the internal auditor has praised in a recent engagement communication

• Not reporting significant observations and recommendations about illegal activity to the board because management has indicated it will address the issue

Which situation most likely violates The IIA’s Code of Ethics and the Standards?

• The chief audit executive (CAE) disagrees with the engagement client about the observations and recommendations in a sensitive area. The CAE discusses the detail of the observations and the proposed recommendations with a fellow CAE from another organization

• An organization’s charter for the internal audit activity requires the chief audit executive (CAE) to present the yearly engagement work schedule to the board for its approval and suggestions

• The engagement manager has removed the most significant observations and recommendations from the final engagement communication. The in-charge internal auditor opposed the removal, explaining that (s)he knows the reported conditions exist. The in-charge internal auditor agrees that, technically, information is not sufficient to support the observations, but management cannot explain the conditions, and the observations are the only reasonable conclusions

• Because the internal audit activity lacks skill and knowledge in a specialty area, the chief audit executive (CAE) has hired an expert. The engagement manager has been asked to review the expert’s approach to the assignment. Although knowledgeable about the area under review, the manager is hesitant to accept the assignment because of lack of expertise

A chief audit executive (CAE) learned that a staff internal auditor provided confidential information to a relative. Both the CAE and staff internal auditor are CIAs. Although the internal auditor did not benefit from the transaction, the relative used the information to make a significant profit. The most appropriate way for the CAE to deal with this problem is to

• Verbally reprimand the internal auditor

• Summarily discharge the internal auditor and notify The IIA

• Take no action because the internal auditor did not benefit from the transaction

• Inform The IIA’s Board of Directors and take the personnel action required by organizational policy.

Which of the following situations is a violation of The IIA’s Code of Ethics?

• An internal auditor was ordered to testify in a court case in which a merger partner claimed to have been defrauded by the internal auditor’s organization. The internal auditor divulged confidential information to the court.

• An internal auditor for a manufacturer of office products recently completed an engagement to evaluate the marketing function. Based on this experience, the internal auditor spent several hours one Saturday working as a paid consultant to a hospital in the local area that intended to conduct an engagement to evaluate its marketing function.

• An internal auditor gave a speech at a local IIA chapter meeting outlining the contents of a program the internal auditor had developed for engagements relating to electronic data interchange (EDI) connections. Several internal auditors from major competitors were in the audience.

• During an engagement, an internal auditor learned that the organization was about to introduce a new product that would revolutionize the industry. Because of the probable success of the new product, the product manager suggested that the internal auditor buy an additional interest in the organization, which the internal auditor did.

Which of the following most likely constitutes a violation of The IIA’s Code of Ethics by an internal auditor?

• Discussing at a trade convention the organization’s controls over its computer networks.

• Purchasing stock in a target entity after overhearing an executive’s discussion of a possible acquisition.

• Deleting sensitive information from a final engagement communication at the request of senior management.

• Investigating executive expense reports based completely on rumors of padding.

Which of the following is a violation of The IIA’s Code of Ethics principle of confidentiality?

• Confidential information of the organization was released in response to a court order received by the organization

• During an engagement, the audit supervisor found that a control deficiency caused by management override created exposure to material risks. He reported the matter to the audit committee.

• Disclosure of the organization’s trade secrets to a family member. The disclosure of the information resulted in no personal gain to the internal auditor or the family member.

• A loan officer at the local bank requested financial statements for the past two years. The CFO approved the request.

“Internal auditors shall be prudent in the use and protection of information acquired in the course of their duties” is a Rule of Conduct under which principle of The IIA’s Code of Ethics?

• Disclosure

• Competency

• Confidentiality

• Risk-based assurance

Which of the following violates The IIA’s Code of Ethics principle of confidentiality?

• The internal auditor purchased stock in the company after seeing a draft of the quarterly financial statements.

• A first-year internal auditor sought help preparing workpapers from a third-year internal auditor on the same engagement.

• The company’s internal audit charter states, “If independence is impaired in fact or appearance, the details of the impairment must be disclosed to appropriate parties.”

• The CAE began an investigation on submitted travel expense reports after hearing sales personnel were inflating their travel expenses.