Which situation most likely violates The IIAs Code of Ethics and the Standards?

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 experts approach to the
assignment. Although knowledgeable about the area
under review, the manager is hesitant to accept the
assignment because of lack of expertise.
An organizations 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 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.
The chief audit executive is aware of a material inventory shortage caused by
internal control deficiencies at one manufacturing plant. The shortage and related
causes are of sufficient magnitude to affect the external auditors report. Based on
The IIAs Code of Ethics, what is the CAEs most appropriate course of action?
Communicate the shortages to the board and allow them to
communicate it to the external auditor.

Inform the external auditors of the possibility of a shortage

but allow them to make an independent assessment of the
amount.

Say nothing; guard against interfering with the

independence of the external auditors.

Discuss the issue with management and take appropriate

action to ensure that the external auditors are informed.
addressing patents on developments that are not related to its basic business, but it has a general policy that all important new discoveries
by employees are the property of the organization. The employee is considered one of the most prestigious in the field. The employees
actions have been condoned by local management as an extra incentive to keep the employee at the lab. A decision not to report the
employees action is

Justified because divisional management is aware of the

practice, and it is not in violation of organizational
policies.

A violation of the reporting requirements in

the Standards.

Both a violation of The IIAs Code of Ethics AND a

violation of the reporting requirements in the Standards.
This answer is correct.
Under the Standards, internal auditors should
communicate engagement results. Rule of Conduct 4.2
states, Internal auditors shall perform internal auditing
services in accordance with the International Standards
for the Professional Practice of Internal Auditing. Rule
of Conduct 2.3 under the objectivity principle states,
Internal auditors shall disclose all material facts known
to them that, if not disclosed, may distort the reporting of
activities under review. Hence, the failure to report
violates The IIAs Code of Ethics and the Standards.

A violation of The IIAs Code of Ethics.

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

Deleting sensitive information from a final engagement

communication at the request of senior management.

Discussing at a trade convention the organizations

controls over its computer networks.

Investigating executive expense reports based completely

on rumors of padding.

Purchasing stock in a target entity after overhearing an

executives discussion of a possible acquisition.
This answer is correct.
Rule of Conduct 3.2 under the confidentiality principle
states, Internal auditors 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.
The chief audit executive is aware of a material inventory shortage caused by internal control
deficiencies at one manufacturing plant. The shortage and related causes are of sufficient
magnitude to affect the external auditors report. Based on The IIAs Code of Ethics, what is the
CAEs most appropriate course of action?
Communicate the shortages to the
board and allow them to
communicate it to the external
auditor.
Inform the external auditors of
the possibility of a shortage but
allow them to make an
independent assessment of the
amount.

Say nothing; guard against

interfering with the independence
of the external auditors.
Discuss the issue with
management and take appropriate
action to ensure that the external
auditors are informed.
This answer is correct.
All material facts known by the
internal auditors should be
disclosed (Rule of Conduct 2.3).
The CAE should share
information and coordinate
activities with other internal and
external providers of relevant
assurance and consulting services
(Perf. Std. 2050).

uring the course of an engagement, an internal auditor discovered that a research and
development employee has been patenting new developments that are unrelated to the basic
business of the organization. The organization does not have a specific policy addressing patents
on developments that are not related to its basic business, but it has a general policy that all
important new discoveries by employees are the property of the organization. The employee is
considered one of the most prestigious in the field. The employees actions have been condoned
by local management as an extra incentive to keep the employee at the lab. A decision not to
report the employees action is
Justified because divisional management is aware of the
practice, and it is not in violation of organizational policies.

A violation of the reporting requirements in the Standards.

Both a violation of The IIAs Code of Ethics AND a violation

of the reporting requirements in the Standards.
This answer is correct.
Under the Standards, internal auditors should communicate
engagement results. Rule of Conduct 4.2 states, Internal
auditors shall perform internal auditing services in accordance
with the International Standards for the Professional Practice
of Internal Auditing. Rule of Conduct 2.3 under the objectivity
principle states, Internal auditors shall disclose all material
facts known to them that, if not disclosed, may distort the
reporting of activities under review. Hence, the failure to
report violates The IIAs Code of Ethics and the Standards.