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When ethical dilemmas are encountered, finance leaders can turn to internal auditors for help and support, says IIA president and CEO Richard Chambers

This article was first published in Edition 8 (January 2014) of Accountancy Futures, ACCA's research and insight journal.

The global economic crises at the turn of the century and again a decade later stemmed in part from myriad professional ethics breaches, ranging from outright greed and corruption to a lack of transparency, conflicts of interest and due diligence shortcomings. In response, initiatives on organisational ethics have shifted their focus from rules – traditional compliance programmes – to behaviour that builds economic value. 

Empirical evidence shows that organisations built on strong ethical foundations outperform organisations where ethics is not a main driver of business. The key long-term benefits of ethical business practices, according to Stephen Henn’s 2009 book Business Ethics: A Case Study Approach, include a reduction in the regulatory burden and better financial performance, image and brand recognition, customer satisfaction and loyalty, employee productivity and satisfaction, and even improved access to capital.

Finance professionals face ethical dilemmas through what they have to do and what they see others do, and fully recognise the importance of professional ethics. Indeed, ACCA has identified professionalism and ethics – understanding and acting in accordance with fundamental principles of ethical behaviour and personal ethics, and ensuring the implementation of appropriate corporate ethical frameworks – as one of the 10 key competencies needed by finance professionals in the corporate sector. In ACCA’s survey The Complete Finance Professional 2013, CFOs ranked professionalism and ethics as the second most essential competency for newly qualified finance professionals. 

As the global economy recovers, finance professionals are likely to come under increased pressures and challenges related to individual and company performance. Many of these challenges will involve ethical dilemmas. 

Internal auditors likewise recognise the central importance of ethics. We are transforming our role along an ethics continuum from traditional corporate referee (citing an infraction, throwing a flag or pulling a card, and giving a penalty) to being a part of the conscience of the organisation. Ethical internal audit leaders are honest, courageous, accountable, empathetic, trustworthy, respected and proactive. Internal auditors are uniquely positioned to be part of the corporate conscience and to support CFOs and other finance leaders in navigating ethical dilemmas. In addition to offering the benefit of independence within the organisation, good internal audit professionals embrace certain principles common to finance professionals, apply sharp interview and investigation techniques, develop recommendations that yield insight, and successfully evaluate the robustness of remedial action plans. 

Common principles

Internal audit professionals share principles and similar perspectives on professional ethics with other finance professionals. Through their professional bodies, they have codes of ethics that promote integrity, objectivity, professional competence, confidentiality and principled behaviour. Both insist on the importance of forming balanced judgments that set aside any undue influence from other parties. And both stress the need to follow the law and make the disclosures expected by the law and the profession, and avoid engaging in acts that are discreditable to their profession.

Interviews, investigations and insights

Right versus wrong situations can typically be decided by applying an organisation’s code of conduct, but addressing the most challenging ethical dilemmas and grey areas requires high-level interview skills and investigation techniques, business acumen and the ability to get to root causes. As a catalyst for improving an organisation’s effectiveness and efficiency by providing insight and recommendations based on the analysis and assessment of data and business processes, internal audit can provide finance professionals with critical support in developing the optimal and ethical resolution of issues. 

Action plans

In some situations, information and insights may point to a clear path for moving forward to implement the solution. More complex situations may require creating formal action plans that take into consideration the impact on competing interests of various stakeholder groups such as employees, shareholders, boards, regulators, financial markets, communities and society at large. Other governance functions such as compliance, ethics and risk management may also contribute to developing the action plan, relying in part on internal audit’s interviews, investigations and insights. 

Finally, internal audit’s role, experience, independence and objectivity can help to move ethical leadership forward through a unique ability to assess that an action plan sufficiently addresses the cause, condition and recovery of an ethical dilemma. Finance executives and chief audit executives can and should partner to be the ethical vanguards of the company.

Richard Chambers is president and CEO of the Institute of Internal Auditors (IIA). He currently serves on the COSO (Committee of Sponsoring Organizations of the Treadway Commission) board of directors and the International Integrated Reporting Council.

Last updated: 6 May 2014