Chapter 2

The Professional Practices Framework: Ethics and Standards of Practice

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Chapter 2 Learning Objectives

Understand the structure of the Professional Practices Framework and type of guidance it provides. Apply the professional guidance in the practice of internal auditing. Use the Professional Practices Framework to address issues which arise in internal audit practice. Understand the ethical principles and behavioral norms relevant to the profession and practice of internal auditing. Identify the essential characteristics of functions, organizations, and individuals for the performance of effective internal audit activities. Understand the nature of internal audit activities and the criteria against which performance of these activities can be measured.

The Professional Practices Framework

Components: Code of ethics Attribute standards Performance standards Implementation standards Practice advisories (non mandatory guidance) Other guidance (non mandatory guidance) See Exhibit 2-1

Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. 4

Code of Ethics
Components: Principles Rules of conduct The rules describe 12 behavioral norms that the internal auditor should follow to put the Principles into practice.

Attribute Standards
Definition: Describe the defining characteristics of organizations, as well as the individuals performing internal audit services.

Performance Standards
Definition: Describe the nature of internal audit services and provide quality criteria against which the performance of these services can be measured.

Implementation Standards
Definition:

Apply to specific types of internal audit services The framework envisions potentially numerous sets of Implementation Standards, such as standards for specialized industries

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Breaches of the Code of Ethics

Censure Suspension of the membership and/or certification Expulsion and/or revocation of certification

IIAs Ethics Committee Violation of any of the Code of Ethics will preclude the delivery of value addes and, thus, effective internal audit services.

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The Attributes Standards

Purpose, authority, and responsibility - the function should have a charter that states the functions purpose, authority, and responsibilities and specifies the types of assurance and consulting activities provided. Independence and objectivity

Independence the freedom of conditions that threaten objectivity or the appearance of objectivity Objectivity an unbiased mental attitude (not to subordinate their judgment) Proficiency knowledge and skills for the function to fulfill its responsibilities Due professional care applying the care and skill expected of a reasonably prudent and competent internal auditor

Proficiency and due professional care

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Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. 13

The Performance Standards

Managing the internal audit function Nature of work Engagement planning Performing the engagement Communicating results Monitoring progress Managements acceptance of risks

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Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. 15

The Practice Advisories

Non mandatory Provide more specific guidance

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Copyright: Internal Auditing: Assurance and Consulting Services, by The Institute of Internal Auditors Research Foundation, 247 Maitland Avenue, Altamonte Springs, Florida 32701-4201 U.S.A. 17