Code of Ethics for Audit Organizations

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Introduction

Ethics is defined as a framework of basic ideas, principles, and concepts that guide decent human conduct in a variety of settings. Key universal values that ethics take into consideration include equality of sexes, human rights, concern for the natural environment, attention to the health and safety of the population, as well as the obedience to the established laws and regulations. Because the sphere of business also implies the following of ethical standards, codes of ethics have been developed (Patil & Bhakkad, 2014). A code of ethics is composed of a guide of principles and rules that help professionals in the workplace to act with honesty and integrity. Codes of ethics may differ from one organization to another. Some of them can include the core values and mission of an organization, outline specific principles that employees should follow when approaching each other, identify what decision-making procedures should be in place, and more.

Codes of ethics developed for organizations may be compliance-based and value-based depending on the purpose of the code, and the way business is approached. Compliance-based codes of ethics are developed not only for outlining ethical practices for guiding the conduct within organizations but also for determining penalties enforced on violations of the established standards. Value-based codes of ethics are focused on addressing core systems of values in relation to doing a greater good for the public and/or the environment. As a rule, this type of ethical codes may require companies to engage in greater self-regulation practices in comparison with compliance-based codes.

The creation of cohesive codes of ethics will make it easier for businesses to establish effective decision-making practices at all levels through reducing ambiguity and enhancing considerations of individual perspectives with regards to ethical standards. Codes of ethics are important to enforce because they prevent unfair treatment of employees in the workplace, promote respect for the interests of everyone, bring out the best qualities in individuals, hold companies socially responsible, and enforce higher standards that lead to better performance of firms. Having a cohesive code of ethics will allow organizations of any specialization to clarify their mission and communicate valuable principles connected to professional conduct practices (ECI, 2018). Besides, codes of ethics are essential for employees to have a cohesive guide that they can reference when making relevant decisions in their job.

Code of Ethics for Auditors and Administrative Personnel

An audit implies an objective examination and assessment of organizations’ financial statements for ensuring that the provided records are free of unfair practices or inaccurate information that is directly linked to business or other transactions (depending on the nature of an organization). Audits can be internal and external: while the former is completed by employees of the organization that is being audited, the latter implies the hiring of an outside company that specializes in this task. External audits are considered more beneficial because they help companies to eliminate possible biases when it comes to evaluating the state of a company’s financial transactions.

As a rule, external auditors look for material errors in statements associated with specific objects. Through searching for these errors, organizational stakeholders can get a sense of accuracy when managing their financial statements as well as get equipped with information for making rational decisions in regard to audited subjects. When third parties perform audits, opinions on about the subjects in question are honest and therefore have a lesser impact on everyday relationships in the workplace. The majority of companies receive an audit once a year while large corporations need their documentation assessed each month. In addition, audits may be legally required for firms that can be compelled by financial incentives to present misleading financial information, which is a fraudulent act.

Auditors

• Audit implies an evaluation of an organization’s financial statement and management practices to meet the desired standards.
• Auditing is an act of performing an audit (BCCSA, 2012).
• Employer is an entity that hired the auditing firm to perform the necessary evaluation.
• Confidential information includes all financial and legal documentation, communication, interviews, and other information that was obtained by an auditor during an assessment (BCCA, 2012). Such information also relates to intellectual property, specialized software, documentation (drawings, designs, tables, written papers), trade secrets, know-how, and more.
• A conflict of interest implies a situation the nature of which is likely to prevent the auditor from objectively performing an audit (BCCA, 2012).
• Integrity is among the key principles of conducting an audit and means a continued reliance of an auditor on truthfulness and fair judgment of information with which they deal.
• Personal relationships implies interactions with another party that may disrupt the operation of an external auditor or contribute to the shift in independent judgment. Colleagues, family members, close friends can be included in this principle.
• Professionalism is defined as a skill that external auditors possess; it implies sound judgment and respectful behavior in regard to other parties during the process of auditing.

Ethical standard: conduct of an external auditor

When performing an assessment of an employer’s financial statements, an external auditor that works for a firm must follow the mentioned guidelines:

• Show honesty and objectivity when performing an audit: separating facts from general opinions and only form conclusions on the basis of objective information that can be corroborated; in case of finding any violations from the standards and regulations, an auditor must be honest when communicating this information to employers.
• Be diligent and accurate when performing an audit: it is required for an external auditor to act in good faith and with competence when interpreting materials from financial statements while preventing the compromisation of independent judgment. In terms of accuracy, the auditor must strive for consistency and ensure that no errors or omissions were present.
• Ensure that audit results are clearly communicated to employers: any observations, notes, recommendations, and so on should be presented concisely and in simple language for better understanding of employers.
• Make valuable and relevant conclusions at the end of each audit: an auditor must make sure that the external audit was important for the operations of an employer and therefore will be beneficial for improving the existing practices within the organization.
• Provide complete auditing reports in a timely manner: an auditor must complete the auditing within the period discussed with an employer; there should be no gaps or missing information in reports.

Ethical standard: conflict of interest

It is required that external auditors that were hired to perform an evaluation of an organization’s financial statements avoid placing themselves in situations that can potentially affect their fair judgment. The following standards are expected to be followed:

• Provide audits to a firm that did not previously collaborate with a co-worker from the same auditing company with regards to the advisory work on financial statements without the compliance with the ethical standards of auditing.
• Provide audits to a firm that only collaborated with a co-worker from the same auditing company with regards to generic training and educational sources.
• Refrain from providing audits to companies if the auditor has friend or family relationships with the employees of the organization that should be audited in the case when there is a risk of Conflict of Interest arising.
• Avoid making auditing recommendations that are directly associated with the justification or encouragement of purchasing services from the auditor’s company.
• Avoid promoting the services of the auditor’s company when performing an external audit for an employer.
• Avoiding performing audits for an organization that has had any previous or has existing contractual relationships with the auditor’s organization.

Ethical standard: confidentiality

Several ethical standards should be followed by auditors when performing an assessment of an employer’s documentation. These standards include the following:

• Be active in protecting valuable information from unauthorized disclosure.
• Avoid disclosing confidential information obtained from audits without expressing the permission of an employer.
• The disclosure of confidential information without an employer’s permission is warranted when such a disclosure is necessary for performing an audit.
• The disclosure of confidential information without an employer’s permission is acceptable when an auditor has a legal requirement to disclose it.
• When performing an audit, an external auditor hired by an employer is required to ensure anonymity of relevant individuals that can aid in performing an audit.

Ethical standard: integrity and professionalism

It is expected that an external auditor hired by an organization maintain high standards of professionalism in integrity when performing his or her duties. It is required that an auditor complies with the following standards:

• Avoid engaging in activities that may discredit the profession of auditing.
• Avoid performing an audit that requires the level of expertise that an auditor does not have.
• Avoid misrepresenting the competency of an auditor, his or her certification, professional experiences, and other variables that are directly associated with successfully completing an audit (FDA, 2013).
• Avoid using information that an employer provided for personal gain or the gain of an auditing firm for which the individual works.
• Avoid manipulating information gathered from financial audits in order to present misleading findings or make false recommendations.
• Avoid making shortcuts in the evaluation and validation methods necessary for performing a successful audit.
• Prevent the results of audits getting influenced by any other factor apart from the analysis of presented documentation, observations, interviews, and so on.
• Eliminate all possibilities of inclusion of incorrect statements when presenting auditing results.
• Eliminate all possibilities of an auditor receiving any financial reinforcements or gifts for performing an audit apart from the rewards that have previously agreed on between an auditor and employer.

Penalties for Breaching the Code of Ethics

Depending on the nature of a violation, breaches can be differentiated into minor, significant, and serious infraction (AMTA, 2017).

• Minor infraction: an auditor violated the code of ethics for the first time and the outcome of the audit was not compromised.
• Significant infraction: an auditor violated the code of ethics through compromising the integrity of the audit’s findings, which lead to an employer’s economic loss.
• Serious infraction: an auditor violated the code of ethics multiple times and caused significant economic loss to the employer. Depending on variables and the issue itself, both first- and second-time violations of the code can be regarded as serious.

When it is established to what degree the auditor violated the code of ethics, an appropriate penalty is determined.

Minor infraction: an auditor is required to compose an apology letter to parties affected by the violation; additional training courses may be recommended; the certification of an auditor may be suspended for up to six months, with the auditor being removed from the practice.

Note: an auditor may receive either one or several punishments for minor infractions stated above (AMTA, 2017).

• Significant infarction: an auditor may have his or her certification suspended for minimum six months to one year; additional auditor training is required with the subsequent re-submission of new qualification results; until the restoration of the auditor’s certification, he or she will be removed from practice.
• Serious infarction: an auditor will have his or her certification revoked permanently; he or she will be removed from practice.

Administrative Personnel

Similar to external auditors that are hired by organizations to assess financial statements and other documentation, the administrative personnel of audit companies are also held to specific ethical standards to ensure that the workplace is characterized by qualities of objectivity, truthfulness, integrity, professionalism, and avoidance of conflicts of interest.

Ethical standard: fairness and justice

As professionals in administrative positions at audit organizations that provide external audit services to companies, the personnel is ethically responsible for fostering a just and fair environment in the workplace. The following standards are expected for administrative personnel to follow:

• Respecting the unique contributions that each employee in the team brings to the audit organization.
• Treating co-workers and subordinated with respect and compassion for the purpose of establishing a trusting and nurturing environment in the workplace; ensuring that bias, discrimination, or harassment are not accepted in the workplace.
• Ensure that the auditors in the company have extensive opportunities to improve their expertise and develop new skills.
• Develop appropriate administration policies that will facilitate the equitable and inclusive treatment of all workers.
• Put aside personal interests when making decisions about important auditing jobs and opportunities.

Ethical standard: conflict of interest

As professionals in administrative positions at audit organizations that provide external audit services to companies, the personnel is ethically responsible for maintaining a high level of trust with organizations that pay for the services the audit firm provides. It is expected that administrative workers protect the interests of their workers while ensuring that they do not lose clients because of conflicts of interests. The following list includes key guidelines regarding the ethical standard of avoiding conflicts of interest:

• Review, assess, and amend existing policies on conflicts of interest within an auditing organization to comply with the latest demands and trends in the industry.
• Avoid giving preferential treatment to accomplished employees or only supporting interests of companies-employers at the expense of auditors’ satisfaction.
• Make an effort in identifying a potential conflict of interest and predict the severity of the impact on involved parties; arising conflicts should be communicated to relevant stakeholders (SHRM, 2014).
• Refrain from using the administrative position for personal (predominantly financial) gain.

Ethical standard: use of information

Because information is a key attribute of audits, the administrative personnel of audit companies is required to protect the rights of both auditors and their employers in the acquisition and distribution of information. As professionals in administrative positions at audit organizations that provide external audit services to companies, the personnel is ethically responsible for building trusting relationships in the workplace through maximizing the exchange of information that is appropriate and accurate. The following list includes guidelines for the use of information:

• Make sure that only relevant and appropriate information is used in the decision-making process associated with auditing jobs and tasks of the personnel.
• Acquire and share information through ethical means.
• Investigate the accuracy and sources of information used during audits before making decisions associated with managing relationships between relevant stakeholders.
• Safeguard the use of restricted or confidential information associated with audits of financial statements or audits of other nature (e.g., workplace safety, etc.).
• Ensure that the audit reports prepared by auditors hired by employers are complete and accurate to avoid customer dissatisfaction.
• Ensure that appropriate steps are taken for ensuring the completeness and accuracy of correspondence between auditors and companies that pay for their services.

Ethical standard: leadership

As professionals in administrative positions at audit organizations that provide external audit services to companies, the personnel is ethically responsible for exhibiting individual leadership practices. Administrative workers are expected to be role models for auditors that they employ to maintain the highest possible standards of ethical conduct (SHRM, 2014). The intent behind this standard is associated with earning the respect of workers and increasing the credibility of administrative personnel with regards to those whose work they guide. The following list includes several requirements for ethical leadership:

• Be ethical in all business interactions: from employees-auditors to companies that pay for the services of an auditing company.
• Question the actions of auditors and/or their employees to ensure that the relevant decision-making process is implemented ethically and in support of everyone’s interests.
• Implement mentoring and teaching programs to train auditors on how to be ethical leaders as well as to enhance skills of administrators.
• Search for the guidance of independent specialists in the sphere of administrative leadership in the case when there are doubts on how to act in a specific situation.

Ethical standard: professional responsibility

As professionals in administrative positions at audit organizations that provide external audit services to companies, the personnel is ethically responsible for adding value to the company. Administrators are expected to act as advocates for the profession or auditors through engaging in practices that will contribute to the value and credibility of audit firms. The intent behind this ethical standard is assisting auditors in achieving their corporate goals and building a portfolio of satisfied customers. The following list includes several guidelines for professional responsibility standards:

• Comply with the laws and regulations of jurisdictions in which an audit company operates.
• Measure the efficiency of administrative personnel in managing and mediating relationships between auditors and organizations that use their services.
• Work in accordance with the regulations established for the administrative profession.
• Comply with the high standards of professional and ethical behavior in the workplace.
• Set a goal of achieving the highest level of satisfaction of employers with the services that an auditing company provides.
• Openly support the appreciation of human and professional rights of auditors and ensure that they are treated ethically as employees of a firm.
• Participate in debates associated with relevant decision-making to ensure that an auditing company provides top quality services to organizations that use them.

Penalties for Breaching the Code of Ethics

If identified that workers in administrative positions at audit firms breached the code of ethics outlined above, they may be subjected to penalties depending on the severity of a violation. The differentiation between the levels of infraction can also apply to professionals in the administrative field. It is important to note that the nature of ethics breaches conducted by administrative personnel of audit firms is more complex and therefore requires a careful case-by-case examination. Relevant factors in determining the level of ethical guidelines’ breach include:

• The reputation of the worker in an audit company.
• The seriousness of the breach itself.
• The level of influence the breach had on the company’s effectiveness in providing high-quality audit services.

Penalties that may be imposed on administrative personnel can include:

• Temporary/long-term suspension from an administrative position.
• Temporary/long-term reassignment to another position in an audit company.
• Firing an individual from an audit company altogether in the case when the adverse impact of the breach of ethical standards was irreversible.
• Additional leadership/administration training with subsequent reviews of professional improvements.

Conclusion

The purpose of the developed Code of Ethics for auditors and administrative personnel is promoting ethical practices and culture pertinent to the profession of auditing. Codes of ethics are important because all of them are targeted at the improvement of relationships within organizations, which inevitably leads to the establishment of positive reputation of organizations as employers as well as makes firms more likely to engage in social responsibility efforts to gain the trust of the public.

References

AMTA. (2017). Internal auditor code of ethics and discipline policy. Web.

BCCSA. (2012). External auditor code of ethics. Web.

ECI. (2018).Why have a code of conduct. Web.

FDA. (2013). Competence and training requirements for auditing organizations. Web.

Patil, P., & Bhakkad, D. (2014). Redefining management practices and marketing in modern age. Dhule, India: Atharva Publications.

SHRM. (2014).Code of ethics. Web.

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