IIA Mid-Columbia Luncheon Seminar Dr. Brian K. Steverson John L. Aram Chair of Business Ethics School of Business Administration Gonzaga University

The Virtuous Auditor

Overview of Today’s SESSION Internal Auditing as a Profession Discuss the Four Principles of the Institute of Internal Auditors Code of Ethics Focus on “Integrity” and “Objectivity” Why Virtue?

Why Professions? Social Need Vulnerability of Individuals Impact on Common Good Ethical Values Dignity of the Person Rights Social Contract Need for Trust Development of Codes/Standards of Conduct

What Makes for a Profession? Koehn’s “frequently cited traits” They belong to an organization of similarly enfranchised agents who promulgate standards and /or ideals of behavior and who discipline one another for breaching these standards. They possess so-called “esoteric” knowledge or skills not shared by other members of the community. They exercise autonomy over their work which is not well understood by the larger community. They publicly pledge themselves to render assistance to those in need and as a consequence have special responsibilities or duties not incumbent upon others who have not made this pledge -- Daryl Koehn, The Ground of Professional Ethics, 1994

The Public Pledge Most often cited as THE distinguishing feature of professions “One distinguishing feature of any profession, unlike other occupations that may be equally respectable, is that membership entails an ethical obligation to temper one's selfish pursuit of economic success by adhering to standards of conduct that could not be enforced either by legal fiat or through the discipline of the market.” -- Justice Sandra Day O’Connor, 1988 Shapero v Kentucky Bar Association

IIA Core principles Integrity Objectivity Confidentiality Competency

“Integrity” in the IIA Code “The integrity of internal auditors establishes trust & thus provides the basis for reliance on their judgment” Perform work with honesty, diligence, and responsibility Observe the law and make disclosures expected by law and profession Shall not knowingly be party to illegal activity or engage in acts discreditable to profession or organization Respect and contribute to legitimate and ethical objectives of organization

Integrity as true north on professional moral compass Integrity as a Specific Virtue Consistency between Belief & Action Integrity as Holistic Virtue To be Whole; to be Undivided Self-Integration

“Acting with integrity” Acting (in accordance with) integrity Action conforms to what integrity requires Motivation irrelevant Accidental/Coincidental Acting (from a sense of) integrity Internal cause of action is character trait Motivation is what matters More stable/reliable An action has moral worth only if it expresses a good will -- Immanuel Kant

“Objectivity” in the IIA Code “Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information . . . Internal auditors make a balanced assessment of all relevant circumstances and are not unduly influenced by their own interests or by others in forming judgment.” Shall not participate in any activity or relationship that may or be presumed to impair their unbiased assessment Shall not accept anything that may or be presumed to impair their professional judgment Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review

“objectivity” in International Standards for the professional Practice of internal Auditing “Objectivity is an unbiased mental attitude that allows internal auditors to perform engagements in such a manner that they believe in their work product and that no quality compromises are made.” “Objectivity requires that internal auditors do not subordinate their judgment on audit matters to others.”

“OBJECTIVTY” AS CHARACTER TRAIT Mental Attitude; cognitive not conative Stable, not transitory; the “will” Requires self-control; denial of self-interest Confidence of judgment

Mandatory & Non-Mandatory Virtues* Minimum Requirements to Actually Exercise Professional Judgment Non-Mandatory Virtues Go Beyond the Minimum, Influence Professional’s Formulation of Judgment According to Ideal Standard * Theresa Libby & Linda Thorne, “The Identification and Categorization of Auditors’ Virtues,” Business Ethics Quarterly, vol. 14 (2004): 479-498.

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