Ethics Case

1) Does including the CAE (Chief Audit Executive) in a company's stock option program violate the Code of Ethics?

Yes. By including the CAE in a company’s stock option program this could be taken as a violation of the Code of Ethics. By including the CAE in the company’s stock option program some of the Code of Ethics Principles would be violated or called into questioning. The CAE could possible compromise their integrity and objectivity in order to maintain the company’s stock valuable to ensure that they would not take a lost on their stock options.

The CAE integrity could be in jeopardy because they could knowingly be part to illegal activity or engaged in act that are discreditable to the profession on internal auditing or to the organization by trying to produce a variable report in order to keep stock prices up. The CAE objectivity could also be affected by accepting the company’s stock option because it could impair their professional judgment. The stock option could also impair or be presumed to impair their unbiased assessment.

The CAE is supposed to preserve a degree of separation so they can remain objective when reporting to the management and audit committee. By including them in the company’s stock option this would not allow for the CAE to maintain that degree of separation. Objectivity is a key factor that the CAE must uphold in order for the whole process to work and met the intent of the Code of Ethics principles.

2) After every audit, a survey about the audit work is sent to key management involved. A portion of each auditor’s annual bonus is calculated based on the results of these surveys. Does this practice violate the Code of Ethics?

No. I do not agree that a portion of an auditor’s annual bonus should be tied into their surveys but this practice does not violate any Code of Ethics. Surveys are a tool used to weigh an individual’s performance. One can hope that a supervisor reviewing these surveys can determine the difference between poor performances accomplished by an internal auditor verses an unsatisfied customer who did not like the outcome of their report.

3) An internal auditor assigned to audit a vendor’s compliance with product quality standards is the brother of the vendor’s