1. Review the articlePrinciples of Ethics for Internal Auditors Made ManageableWHICH IS ATTACHED BELOW.

• Basedonyourreadingsandreview,writea2to3pagepaper,double-spaced,applyingthemulti-stepprofessionalpracticemodeltothefollowingCaseStudy:

SHOULD NOT BE PLAGIARIZED

Organize your paper using the following Professional Practice Model:

1. FACTS. Obtain the relevant facts.
2. STAKEHOLDERS. Identify and list the stakeholders (Internal and External).
3. ISSUES - ETHICAL. Identify and verbalize the ethical issues.
4. PRINCIPLES - ETHICAL. Identify and list the ethical principles involved.
5. ANALYSIS BRAINSTORM ALTERNATIVES & CONSEQUENCES.
6. CONCLUSION Choose the Best Action

Checkpoint Contents Accounting, Audit & Corporate Finance Library Editorial Materials Internal Audit Internal Auditing Archive May/June 2008 PRINCIPLES OF ETHICS FOR INTERNAL AUDITORS MADE MANAGEABLE PRINCIPLES OF ETHICS FOR INTERNAL AUDITORS MADE MANAGEABLE JAMES LAMPE AND ANDY GARCIA JAMES LAMPE, Ph.D., CPA, is the Dean's Distinguished Professor of Ethics in the College of Business at Missouri State University. His teaching and research over the past 30 years has focused on auditing and ethics. He is a past contributor to Internal Auditing and a member of Internal Auditing's board of advisors. ANDY GARCIA, Ph.D., CPA, is an assistant professor at Bowling Green State University. He has worked for an international accounting firm, worked at a Fortune 500 company as an international auditor, and served in the United States Marine Corps. His research focuses on accounting professionalism and accounting history. Internal auditors can utilize a structured and principles-based six-step approach to make decisions when confronted with difficult ethical dilemmas. The Institute of Internal Auditors (IIA) first introduced its Professional Practices Framework in its Vision for the Future report in 1999. The framework includes a definition of internal auditing, a Code of Ethics, Standards for the Professional Practice of Internal Auditing, Practice Advisories, and Development and Practice Aids. The framework's scope covers both auditing and consulting activities by internal auditors. The roles fulfilled by internal auditors since the adoption of the Professional Practices Framework have changed dramatically. Included in the many changes experienced by many if not most practicing internal auditors are such new responsibilities as: providing assurance to executive management of organizations affected by Sarbanes-Oxley Section 404 compliance; assessing the reliability of increasingly complex and pervasive IT processing and communications; adapting to the increasing international impact on operations and accounting functions; and dealing with the near overload or overload of new standards and guides for practice. Because of these and other significant changes in the practice of internal auditing, the IIA has approved a new International Professional Practices Framework. These new standards and guidance were exposed for comment through March 31, 2008, have been approved by the IIA's board of directors, and will go into effect in January 2009. The new standards are intended to accomplish numerous objectives, including the following: add guidance needed because of internal auditors' new activities; restrict framework guidance to audit activities only; improve clarity and user friendliness; increase the flexibility and transparency of new standard development; and place greater emphasis on the use of professional judgment by internal auditors to apply more broadly stated principles in ethics and practice standards. One problem for practicing internal auditors is how to consistently and objectively exercise professional judgment in the application of general ethical principles to specific ethical problems. Questions include: What ethical principles are appropriate? How are alternative applications analyzed? How can the "correct" decision be recognized? At times the process seems unmanageable with no clear guidance on how to make the decision. The purpose of this article is to provide a structured approach to an ethical decision-making process that ensures proper focus on the issues of each unique problem and careful consideration of ethical principles as set forth in the IIA's International Professional Practices Framework. Professional judgment The word "professional" is used very loosely in colloquial English. Advertisements promote "professional grade" equipment, tools, detergents, and many other products. Virtually everyone who provides a service for money often refers to himself or herself as a professional. Pest exterminators and used-car salesmen are but a few of the many service providers that are referred to as professionals. In the context of an internal auditor exercising professional judgment in the application of ethical principles to perplexing dilemmas encountered in his or her everyday practice, a much deeper meaning and responsibility is associated with professional judgment. Sociologists have studied the basis for distinguishing a profession from an occupation and have generated several theories about the distinction. 1 Common to all the theories is that society provides the recognition of elite status that comes with the word "professional" in the context of doctors, lawyers, accountants, and the like, rather than the workers or leaders of the occupational group. Other commonalities between theories include the following: A profession is an occupational group with a special skill. The skill is abstract and requires extensive education and training. The skill is not applied in a routine fashion but rather varies uniquely case by case. A profession is exclusive. A dichotomy of theories has been recognized and distinguishes the major difference in the theories: functionalist vs. monopolist. The functionalist theorists maintain that the function of a profession is to improve societal consequences derived from professional activity. Monopolist theorists perceive that the main consequence of professional activity is increased power (e.g., money or status) of the profession. This article concentrates on the functionalist theories. An associated and generally accepted maxim is that with societal recognition of higher elite status as a professional comes greater acceptance of a responsibility to serve society. If members of an occupational group have achieved recognition as a profession but subsequently do not accept the responsibility of public service, the recognition as a profession may be lost. Virtually all the codes of ethics promulgated by accountancy organizations contain a statement to the effect that members' service to society is the primary responsibility that comes ahead of self interest and other considerations. In the IIA Code of Ethics, both principles and rules of conduct are presented in less than three pages. The code may be summarized as one page of introduction, a half-page of principles, and one page of rules. By contrast, the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct may be summarized as: introduction-one page; definitions and applicability-four pages; principles-six principles (articles), about one half-page each; rules-11 rules, about one-half page or less; interpretations-more than 20 pages; rulings-more than 100 pages; and bylaws-more than 100 pages. Clearly there are more rules and many more interpretations, rulings, and bylaws in the AICPA code. An advantage of greater specificity in rules, interpretations, rulings, and bylaws is that greater standardization of compliance occurs. A disadvantage is that less professional judgment concerning right vs. wrong takes place. Most accountants (especially auditors) are rule-oriented. Whether by innate inclination, education, training, work experience, or a combination of these and other factors, most accountants really like hard and fast "bright line" rules that distinguish the allowable from the unallowable. A further inclination then may be to manipulate those rules for self-benefit or the benefit of the organization or unit under audit. As long as the rules are only bent or manipulated and not broken, then most accountants might feel ethical and justified in their actions. When a code, such as in the current Professional Practices Framework or the pending International Professional Practices Framework, has few rules with very little explanation, much greater emphasis is placed on professional judgment to apply the agreed-upon principles to achieve the "right" decision and action. Less standard decisions and actions result when a true ethical dilemma with no clear-cut answer is encountered by accountants who apply their professional judgment. Several different auditors may come to different conclusions and decisions. The question is whether a more specific rule orientation or a less detailed principles orientation (as encouraged by the International Professional Practices Framework) results in better decisions and actions by accountants. The rules vs. principles alternative has been long debated and cannot be resolved here, for accounting principles and auditing standards as well as for ethical principles. What is clear is that accounting principles promulgated by the Financial Accounting Standards Board and the Governmental Accounting Standards Board; auditing standards and practices of the IIA, AICPA, and Public Company Accounting Oversight Board; and ethical principles of the IIA and the Institute of Management Accountants are all intentionally heading towards a greater emphasis on principles, requiring application of professional judgment. The purpose of this article is to make the application of ethical principles more manageable for internal auditors. Which ethical principles? The stated purpose of the IIA Code of Ethics is to promote an ethical culture in the profession of internal auditing. Four broad principles are provided as being relevant to the profession and practice of internal auditing: integrity (four short rules), objectivity (three short rules), confidentiality (two short rules), and competency (three short rules). While the principles and the associated rules are appropriate and directly applicable to the practice of internal auditing, a problem remains in that the rules and principles cannot and do not have direct and obvious application to the myriad problems that internal auditors encounter in everyday practice. One reason for promoting a primarily principles-based approach to ethical decision making is that it is impossible to consider and promulgate rules for every possible ethical dilemma in practice. In the same way that it has been necessary to have a more detailed discussion of "professional judgment," it is also necessary to further consider and discuss "ethical principles." When new technical standards are proposed, such as those in the new International Professional Practices Framework, it is necessary that persons educated, trained, and experienced in internal auditing have autonomy during the promulgation process. Only educated, trained, and experienced internal auditors have the needed expertise to generate such standards. The same statement is not appropriate for ethical standards. Medical ethics, legal ethics, engineering ethics, journalistic ethics, and accountancy ethics all involve distinctly different areas of professional practice, but all employ the same general ethical principles to resolve the ethical dilemmas that arise in each respective discipline. In most situations, the same general ethical principles apply to the problems confronted by all the different professions. It is similarly true that the great majority of ethical dilemmas facing professionals cannot be adequately resolved by a routine, direct, and mechanistic application of ethical principles. Instead, most ethical dilemmas encountered by professionals require professional judgment to specify (i.e., interpret more concretely) the general ethical principles appropriate to the specific situation. In support of the application of similar general ethical principles, consider the statement of appropriate ethical principles by the leading accounting and auditing professional associations, as shown in Exhibit 1 . Although each respective organization states applicable principles differently, it is apparent that the same general ethical principles are being referenced. The first four rows of the table indicate that some key and identical principles are being referenced by all of the organizations. The same is true for other professions' codes of ethics. When the entire set of ethical principles is perused, it becomes apparent that while different words are used, the different organizations are referencing the same general set of ethical principles. When the IIA standards admonish internal auditors to carefully consider ethical principles, it is an admonishment to carefully consider ethical principles in general rather than narrow definitions of the four listed principles. It is, therefore, necessary to briefly discuss general ethical principles. Exhibit 1. Comparison of Accountancy Code Principles Professional IIA 2 ISACA 3 IMA 4 AICPA 5 IESBA 6 Organization: Applicable Professionals: IT Governance Management International Internal Auditors Professionals Accountants CPAs Auditors Objectivity Objectivity Objectivity and Objectivity Objectivity and due care Integrity Honesty and independence Honesty Integrity Integrity Due care Competence character Competency Competency and due care Professional IIA 2 ISACA 3 IMA 4 AICPA 5 IESBA 6 Organization: Confidentiality Confidentiality Confidentiality Compliance with standards Full disclosure Professional education Responsibility Member's responsibilities Fairness Public interest Scope and nature of services Professional behavior General ethical principles and theories For most of the 19th and early 20th centuries, most extant ethical theories were dichotomized into teleological or deontological theories. Teleological theories are often represented by different variations of utilitarianism. Utilitarian theories, in general, state that the moral worth of actions is measured by the impact on the affected community-the greatest good for the greatest number. When, for all affected parties, the accumulated good consequences of an action exceed the accumulated bad consequences by the greatest possible amount, the action is considered good by utilitarian principles. The three philosophers most commonly associated with positing utilitarian theory are David Hume (1711-1776), Jeremy Bentham (1748-1832), and John Stuart Mill (1806-1873). Hedonistic Utilitarians believe good exists when pleasure is felt. Pluralistic Utilitarians believe that other intrinsic values in addition to pleasure-knowledge, satisfaction, friendship, health, and so forth-need to be included in the greatest-good-over-bad equation. Bentham is known for working out a measurement device called "hedonic calculus" to precisely measure happiness and unhappiness. Another dichotomous variation of the utilitarian theories is Act Utilitarianism vs. Rule Utilitarianism. Act Utilitarians believe that only the final consequences of an act are measured in the greatest-good-over-bad equation. Rule Utilitarians, however, believe that utility is maximized for the entire community when moral rules set by the culture are followed. An example to illustrate the difference is that many German Christians hid Jews during the Nazi holocaust and lied to the Nazis in order to save the Jews' lives. Act Utilitarians would say it is better to lie in some circumstances in order to generate a greater good, while Rule Utilitarians would state the moral rule is to always tell the truth. The Rule Utilitarians believe that the community sets rules, such as truth telling, so that societal benefits (good outcomes) are maximized when everyone follows the rules without exceptions. Deontological theories (derived from the Greek word for "duty") are not based on the concept of "good" and hold that actions are determined to be right or wrong for reasons other than the consequences of those actions. Deontologists place emphasis on the motivation and character of persons performing an act rather than the act itself. Kantianism is the theory most often associated with deontology. Immanuel Kant's (1724-1804) categorical imperative is stated as follows: "I ought never to act except in such a way that I can also will that my maxim should become a universal law."Another way to state this categorical imperative is "What is right for one is right for all." Although often associated with the Golden Rule, Kantianism is much more than the Golden Rule. Examples given by Kant include: Help others in distress. Work to develop your abilities. Do not commit suicide. These are examples of morally acceptable rules that Kant states are able to be applied universally. The theory does not allow exceptions. For example, telling a white lie to save another's feelings could not be considered an exception to truth telling. If everyone were able to decide there were exceptions in which lying were acceptable, it would be inconsistent with the practice of truth telling that the exception presupposes. Another example is that if only one driver speeds through an intersection immediately after the traffic light turns red, there may be no negative consequences. If large numbers of society members make this exception, the presupposed traffic system breaks down to the substantial detriment of many in society. Another basic tenet of Kantianism is respect for persons. Kant states that we must never treat another person exclusively as a means to our own ends. This does not mean that an owner or employer cannot direct an employee to perform morally acceptable tasks in order to generate profit for the business. The categorical imperative is that persons do not become objects, but rather are treated with the respect and dignity to which every person is entitled. An employer is prohibited from exploiting an employee without regard to his or her personhood, interests, needs, and concerns. To prevent this, no exceptions are considered acceptable. While the teleological vs. deontological theories were dominant during the 19th and early 20th centuries, numerous additional and competing ethical theories were put forth during the 20th century. During the last third of the century, Harvard philosopher John Rawls (1921-2002) published A Theory of Justice, in which an egalitarian theory based in both economics and philosophy states that economic goods and services should be distributed equally, except when unequal distribution serves to provide benefits to everyone (or at least the poorest) in the society. A later derivation of Rawls's theory of justice is referred to as Contractarian Theory. In this theory, similar to Adam Smith's Wealth of Nations, individuals or groups who are otherwise equals have the right to enter into economic arrangements (explicit or implied contracts) with the intent to maximize self-interests. Soon after Rawls, Robert Nozick (1938-2002) proposed an opposing libertarian theory referred to as an "entitlement theory of justice." Nozick posits that governments should not adopt policies and take actions to redistribute wealth such as was being done by socialist and impure capitalist societies. Derivations of Nozick's theory are rights-based theories summarized by the statement, "Rights are to obligations as benefits are to burdens. Rights-based theorists posit that the purpose of morality is to secure liberties and other benefits for the holder of specific rights." Another group of 20th century ethical theories are referred to as "virtue theories." These theories descend from Hellenistic thought expressed by Plato and Aristotle. In the simplest form, the theory is that virtuous persons of good character perform virtuous actions. Virtue itself is neither an innate capacity nor a feeling. Instead, virtue is an individual's disposition, cultivated by proper training and exercise. Although numerous other ethical theories exist, the final theory to be discussed here is known as feminist theory, or the "ethics of care." These theories focus on character traits that most people value highly in personal relationships. Such traits include love, friendship, compassion, nurturing, sympathy, tenderness, fairness, fidelity, and thoughtfulness. The "feminist approach" was first articulated by Carol Gilligan (1936-present) in the seminal work In a Different Voice. The distinctive voice or tone is associated more with women than with men. Additional empirical studies in feministic ethics emphasize emotional and intuitive values. Problems with ethical theories After considering the most basic aspects of the major ethical theories currently in existence, internal auditors will probably still have huge problems in applying the theories and principles to professional practice problems. As normative theories, the goal is to lead to logical and proper solution of difficult dilemmas. Instead, most of the theories discussed are competitive-intentionally leading to differing solutions. Additionally, in teleological utilitarianism, the measurement of good vs. bad outcomes is far from precise, and different individuals often use very different weightings, resulting in different "right" solutions. Neither deontological Kantianism nor Mill's utilitarianism consider emotions or caring. Others complain that Kantianism emphasizes universal obligations common to everyone but fails to consider particular obligations, e.g., those that fall only on professional internal auditors. Furthermore, critics state that Kant's view is that moral motivation (i.e., duty) is based on impartial principles; instead, many decisions are highly biased towards self-interest. The end result is that an internal auditor cannot routinely and mechanistically apply any one of the major ethical theories and conclude that an ethical outcome is assured. Discussion of the major ethical theories, however, aids the internal auditor by placing a focus on the ethical principles and the logical progression of thought that provides resolution to an otherwise unsolvable problem. A multi-step professional practice model Based on these ethical theories and principles, numerous professional groups have generated models of ethical decision making to assist their practitioners. It is necessary to emphasize that none of these models are mechanistic decision makers, but rather processes for examining ethical dilemmas. In all situations, the practitioner is required to exercise professional judgment to make the ethical decision. Furthermore, the models presuppose a situation in which the decision maker has reasonable time to arrive at the best action for the ethical dilemma. Crisis situations typically require shortened alternative strategies. Nearly all the decision models promulgated by different professional groups can be labeled as multi-step models. Most of these decision models contain similar steps with variations in their specificity and terminology. Exhibit 2 compares the three models developed for the counseling, accounting, and management professions. Exhibit 2. Examples of Steps in Ethical Models Tymchuk 7 1. Determine stakeholders. AAA 8 1. Determine facts (what, who, Tarvydas 9 1. Interpret situation. where, when). 2. Consider alternatives. 2. Define ethical issues. 2. Review problem or dilemma. 3. Consider consequences. 3. Identify major principles and 3. Determine standards. values. Tymchuk 7 AAA 8 4. Balance risks and benefits. 4. Specify alternatives. Tarvydas 9 4. Generate possible and probable actions. 5. Determine review. 5. Compare values of 5. Consider consequences. alter-natives. 6. Implement decision. 6. Assess consequences. 6. Consult with supervisor. 7. Monitor outcome. 7. Make decision. 7. Select action by weighing competing values. 8. Execute selected action. 9. Evaluate course of action. During the past 30 years, more than 50 other multi-step ethical decision models have been generated. Virtually all of the authors and researchers presenting multi-step decision-making models state or imply that more emphasis is placed on the decision maker rather than on the model. Little known empirical research has been conducted and reported on the preference or superior outcomes of any one model over the others. The purpose of this article is to discuss and propose a structured, six-step internal audit ethical decision-making model in worksheet format (see Exhibit 3 ) that incorporates the seemingly agreed-upon steps that are present in many of the extant models- a rapprochement for the different professionals that may use the tool. Exhibit 3. Sample Case Study and Ethical Discussion Worksheet Example Case: As An Internal Auditor, For Whom Do You Work? In this example, you are an internal auditor for an industrial chemical company. Your company continuously ships products and accepts returns of previously shipped products to approximately 5,000 distributors nationwide. From an accounting perspective, inventory is flowing back and forth, concurrently increasing and decreasing accounts receivable (A/R) balances. Customers sometimes receive "imperfect" products. In many of these cases, the defective inventory is not returned because shipping costs are prohibitively high. The standard contract with most customers allows them to identify and describe the defects in the products and reduce the invoice by the amount charged for the defective products. The A/R supervisor (a CPA) is continuously debiting and crediting customer accounts without knowing the validity of the "defective product" claims. A part of your job as the internal auditor is to ensure that the A/R supervisor is accounting for returns and payments properly. While doing a review, you discover that numerous customers with large A/R balances are regularly paying less than the full invoice price (e.g., a customer is billed for $60,000 but subsequently pays only $50,000) and considering the invoice to be paid in full due to shipment of "imperfect products." When the reduced payment is accounted for, the accounting clerk is instructed to credit it to a previously impaired balance rather than the corresponding invoice. This practice makes it impractical and economically infeasible to subsequently match the "imperfect product" write-downs to the specific product alleged to be defective. You discover that the practice has been going on for some time and that a material portion of the A/R balance is uncollectible but not recorded as such. Upon further investigation, you discover that the A/R department is understaffed and lacks the resources to verify customer claims. Also, you learn that the CFO has instructed A/R personnel to consider all invoices to be collectible and apply payments to prior balances. The CFO justifies this policy with two reasons: (1) he places little belief in customer claims of imperfect product, and (2) the external auditors have not complained about the treatment. He benefits directly from the policy in the form of large bonuses tied to the inflated amount of reported net income. You approach the CFO and state that the policy is inappropriate and must be changed. In your judgment, the accounting is not in accordance with GAAP and obfuscates both the balance sheet and the income statement. The CFO tells you he will not change the policy and asks you, "Who signs your paychecks?" Use the following Internal Audit Ethical Discussion Worksheet as a guide to discuss the matter with one to three other internal audit colleagues and arrive at a decision as to what action is appropriate. Internal Audit Ethical Discussion Worksheet Concepts: Principles: Standards: Public Interest Objectivity Trustworthy (Creditable) Compliance/Standards Integrity Responsibility Respect Competence Honesty Compassion Confidentiality Fairness Discussion Steps: 1. Obtain the relevant facts (often limited by feasibility). The allowance for uncollectible accounts is understated. The CFO benefits from the current policy. The external auditors have not raised the GAAP issue. Accounts receivable department is understaffed. 2. Identify and list the stakeholders (internal and external). Internal: all employees, management, you, your family. External: customers, suppliers, competitors, creditors, shareholders (owners), the internal audit profession, the surrounding community, society in general. 3. Identify and verbalize the ethical issues (an X vs. Y orientation). Rights of the CFO vs. rights of shareholders. Rights of the CFO vs. rights of creditors. Rights of the CFO vs. rights of other stakeholders. Internal auditor's duty vs. self-interest. Decisions of an internal auditor vs. impact on the profession. 4. Identify and list the ethical principles involved (those above plus others). Fairness, integrity, objectivity, trustworthiness, compliance with standards. 5. Brainstorm alternatives and likely consequences (preferably 3-5). Do nothing-The fraud will likely to be discovered by someone else, leaving you looking like an incompetent auditor or worse, an accomplice. Inform the board of directors-If you have direct access or communication with the board, this may be a good option, but may lead to awkward work situations. Inform the CEO if you cannot go to the board-But the CEO likely already knows, so this option may cause political problems or lead to awkward work situations. Anonymously inform the external auditors-This may prevent you from losing your job, but the external auditors may not solve the real problem (they may simply refuse to do the audit) or may not address it until it is too late (and is discovered by someone else). Inform the CEO, then the board of directors-This may lead to reassignment or cost you your job. Step 1: Obtain relevant facts. Competing parties typically have multiple and conflicting viewpoints when deciding an ethical dilemma. When an internal auditor is making an ethical decision, the company CFO and the shareholders are often impacted. In the typical dilemma, each of these parties has differing viewpoints and only a portion of all the relevant facts. In the hypothetical situation represented in Exhibit 3 , all three affected parties have widely varying opinions and only a small portion of the relevant facts. Each person is also likely to have some biases and some strongly held beliefs that may or may not be true. As stated by Alexander Solzhenitsyn, "If only it were true that evil people are somewhere committing evil deeds and it were necessary only to separate them from the rest of us and destroy them. But the line dividing good and evil cuts through the heart of every human being." When the principles of fairness and objectivity are applied, it is necessary to obtain as many available, relevant facts as economically feasible and analyze them systematically. The way that we frame the facts strongly impacts how we view a situation and whether we categorize it as good or evil or reach another conclusion. We typically assume ourselves to be good and our enemies to be evil. In this process we often select positive terminology to support our initial thoughts and negative terminology to represent an opposing view. In the data collection and analysis process (Step 1), it is essential that internal auditors do not intentionally or unintentionally distort reality through the use of biased terminology. A brief list of positive and negative ethical terminology is presented in Exhibit 4 . Internal auditors should consider the positive and negative terms and use language that most objectively and fairly expresses the facts. Exhibit 4. Ethical Terms Negative Terms avaricious hateful self-aggrandize belligerent heartless selfish betray impatience sexism biased inconsiderate sly cheat intolerant spiteful cruel lying swindle cunning malicious thoughtless defraud malevolent trickery dishonest merciless unfair disrespectful petty unkind deceitful prejudiced vengeful duplicitous racist vindictive egotistic rationalize violent fraud revengeful wily greedy rude Positive Terms altruistic honorable scrupulous benevolent humanitarian selfless benign impartial sympathetic charitable integrity tactful civil justice tender considerate kind thoughtful consistency loyal tolerant courteous merciful trustworthy dispassionate moral truthful empathetic noble unbiased faithful objective unselfish forgive open-minded understanding friendly polite virtuous generous respectful warm-hearted gracious Questions to ask during the data-collection process include: What are the most neutral descriptions of the raw facts? How can the facts be investigated more fully? Does self-interest (e.g., concerns, attitudes, wishes) influence my view of the facts? How might other affected parties disagree with my assessment of the facts? Step 2: Identify stakeholders. The persons or groups who will be affected by ethical decisions and actions can come from within or outside the firm or organization that employs the internal auditor who is the decision maker. Because of the public-service orientation of all professions, the listing of stakeholders should typically include the profession, local community, and society as well as those directly and immediately affected by the ethical decision. Step 3: Identify and verbalize the ethical issues. The Solzhenitsyn quote in Step 1 and different religious concepts indicate that all persons have self interest and the capacity to perform evil or harmful actions. Principle/agency theory is based on the premise that all business transactions are based on the desire to maximize self interest. In many situations, the decision maker (actor) does not recognize his or her bias. Therefore, verbalizing the known and perceived facts and the ethical issues involved with another knowledgeable person or persons makes it far less likely for a decision maker to mentally skip or rationalize a harmful action due to self interest. The verbalization may also serve to clear up a misunderstanding. The definition of a dilemma is that no clear win-win solution exists. For example, a decision maker may be forced to choose between two good scenarios in one case and between two bad scenarios in another case. Good outcomes must be compared with other good outcomes or bad outcomes must be compared with other bad outcomes, followed by a decision on the action to be taken. Some examples of difficult balancing in ethical dilemmas include: right to live vs. right to self-determination; right to know vs. right to confidentiality; loss of friendship vs. loss of resources; and quality of life vs. preservation of life. Step 4: Identify the ethical principles. For most internal auditing ethical dilemmas, the primary principles to be applied come from those in Exhibit 1 and listed on the discussion worksheet in Exhibit 3 -objectivity, honesty, integrity, competency, confidentiality, fairness, independence, responsibility, and/or compliance with standards. The internal auditor should not and cannot be limited to the listed principles only. Other principles and values included in the primary ethical theories, such as compassion, reasonable profits, quality, virtue, and others, may be important in a given dilemma. The full range of ethical principles is implied by the IIA's pending International Professional Practices Framework, and those most relevant to a situation should be listed and carefully considered. Step 5: Brainstorm alternatives and consequences. The first thoughts or inclinations that a person has when confronted with an ethical dilemma are not necessarily the best course of action. A substantial advantage of brainstorming alternatives is that verbalization of alternatives with one or more other knowledgeable and confidential colleagues often leads to a synthesis of fresh ideas that no one person would generate individually. A rule of thumb is that three to five alternative courses of action should be seriously analyzed for likely consequences affecting all the listed stakeholders. When fewer than three alternatives are being considered, additional brainstorming is recommended, if feasible. If more than five are being considered, elimination of those considered least beneficial allows more concentrated thought and discussion of the better alternatives. Step 6: Choose the best action. This step is both the most nebulous and most critical in the entire process. It is essential that the internal auditor exercise professional judgment to arrive at the best available (or least harmful) decision and course of action. Judgment is a process in which the decision maker considers, analyzes, and evaluates all the relevant data made available in the first five steps. The synthesis of the prudent and objective considerations in a multifaceted problem provides an output that the professional considers "best" for all those impacted by the ethical decision. Guides to ethical analysis Many well-recognized businesspersons and ethicists have used shortcut approaches employing heuristics (rules of thumb) to aid the difficult decision for an ethical dilemma. Several such guides for choosing the best action follow. These guides are not being recommended as a replacement for the six-step process outlined above, but only as supplemental information an internal auditor might consider in the overall exercise of professional judgment. Ethical theories used in the guides include Kantian deontology, the Hippocratic oath, utilitarian theory, and the social/distributive justice theory. Some commonly referenced ethical resolution models used in the guides include the Peter Drucker model (1909-2005), the Blanchard and Peale model (One Minute Manager-1988), the Wall Street Journal model, and the Laura Nash model (1981). Do no harm (primum non nocere). Some ethicists (particularly the aforementioned utilitarians) posit that business decisions should be made to avoid or minimize harm to individuals, the environment, and the organization itself. Examples include: avoiding anything that may cause death or injury to a human being; considering what you are leaving for your children and grandchildren; asking yourself whether you would like this done to your family; and never treating people as a means to an end (Kant). Consider others' point of view. This approach encourages a decision maker to look at the situation from the perspective of another person (those most directly affected by the decision and society). Examples include: asking yourself how you would like it if this were happening to your family; adopting the "NIMBY" attitude-it might be a good idea for others, but not in my back yard; asking yourself what others will think of you and the accounting profession; and considering the potential consequences if your decisions were universal (Kant). Honor the law. This means being motivated by the spirit of the law. Following the letter of the law sets an absolute minimum standard or floor regarding ethical conduct. Obedience of the law is a necessary but insufficient condition for ethical conduct. Examples include: believing that it is the government's responsibility to protect legal rights; asking yourself the question, "Even if it is legal, is it right?"; considering it a divine command and determining whether it is contrary to religious beliefs; and considering whether the firm or organization has a relevant policy. Consider intent. This approach asks a decision maker to consider what he or she is trying to accomplish in making the decision. Examples include: believing that it is virtuous to do things for the right reasons; believing that your intent is to serve God (a supreme being); believing that this is for the greater good; and believing that your reasons for doing this are just. Consider a time horizon. Numerous ethicists encourage decision makers to examine both the short- and long-term effects of a decision. Examples include: considering the short- and long-term consequences of the decision; Believing the maxim "you can fool some of the people some of the time but not all of the people all of the time"; and believing that bluffing might work in the short term, but never in the long term. Consider transparency, publicity, and the appearance of a decision to others. This approach asks a decision maker to consider how the decision will look to others. Will it appear to be ethical? Examples include: asking yourself whether you would take this action if it were to be printed on the front page of the newspaper tomorrow; asking yourself what your family or a loved one would say if they knew; asking yourself whether this could be defended before an impartial jury; and asking yourself what the ethics committee would do if they knew. Believe in inalienable human rights. This theory posits that people have certain rights that should never be violated. Examples include: believing that God-given rights must never be abused; believing that the government (via the justice system) protects all citizens from unjust consequences; believing that all humans are an end unto themselves (Kant); and believing that some rights should never be violated. Rely on a visceral, gut-feel test. This is a very simple test that asks "How does your decision make you feel?" Examples include: asking yourself whether you will sleep well thinking about this later; asking yourself how you will feel if someone confronts you with this decision; and determining whether any of your virtues or values are being compromised. Rationalize. Rationalizations are common and do not make unethical behavior ethical. Common examples include: basing a decision on the belief that others, perhaps many others, are doing the same or similar thing. thinking it is not your responsibility; telling yourself you cannot go to jail for this; thinking nobody is going to find out anyway; thinking the system is unfair; and telling yourself you are just following orders or rules. Conclusion The first eight of the grouped, one-line final decision sets above can be compared with a one-issue voter-one primary thought decides the final action. The purpose of this article has been to present a structured and principles-based six-step approach to assist internal auditors in making decisions when confronted with difficult ethical dilemmas. The first eight guides presented in the previous section are provided to indicate how different businesspersons and ethicists have approached the sixth and final step in the decision process. When time or other resources do not permit an internal auditor to carefully synthesize information from the first five steps, using one or more of the considerations may help in making the decision. A example case and associated worksheet are provided in Exhibit 3 to help work through the six-step model. 1 See James C. Lampe and Andy Garcia, "Professionalism in Internal Auditing," Internal Auditing 18, no. 6 (November/December 2003): 11-27. 2 Institute of Internal Auditors, Code of Ethics (2000), available online at www.theiia.org/guidance/standards-and-practices/professional-practices-framework/code-of-ethics (accessed April 2008). 3 ISACA, Code of Professional Ethics (2007), available online at www.isaca.org/Template.cfm?Section=Code_of_Ethics (accessed April 2008). 4 Institute of Certified Management Accountants, The Rights and Responsibilities of a Certified Management Accountant (2006), available online at www.imanet.org/pdf/rights_resps.pdf (accessed April 2008). 5 American Institute of Certified Public Accountants, Code of Professional Conduct (2006), available online at www.aicpa.org/about/code (accessed April 2008). 6 International Federation of Accountants; Code of Ethics for Professional Accountants (2005), available online at www.ifac.org/Members/DownLoads/2005_Code_of_ Ethics.pdf (accessed April 2008). 7 A. J. Tymchuk, "Guidelines for Ethical Decision Making," Canadian Psychology 27 (1986): 36-43. 8 William W. May, ed., Ethics in the Accounting Curriculum (Sarasota, FL: American Accounting Association, 1990): 1-8. 9 V. M. Tarvydas, "Ethical Decision Making Processes," in R. R. Cottone and V. M. Tarvydas, eds., Ethical and Professional Issues in Counseling (Upper Saddle River, NJ: Prentice-Hall, 1998): 144-155. 2015 Thomson Reuters/Tax & Accounting. All Rights Reserved