Changing Internal Auditing from a Compliance-Based to a Conduct-Focused Approach

Abstract

Amid public acknowledgment of recurring ethical violations in the volatile financial service industry, internal auditing (IA) professionals do not seem to have done enough to perform their professional responsibility as a line of defense for their employing organizations. This chapter explores whether changes in an IA approach can effectively enable IA as a practice to fulfill its governance role in managing “conduct risk,” i.e., any behavior in a firm that could cause problems to consumer protection, market integrity or competition. We examine the ethical implications of the existing compliance-based IA approach and explain its ineffectiveness in auditing conduct risk within a turbulent environment. Using action research, we explain the germane changes necessary to define a new conduct-focused IA approach capable of predicting and preventing ethical wrongdoing. A conduct-focused approach launches auditors into unfamiliar but strategically critical areas to not only identify material risks but also add value to their organizations. The authors further examine how a change in the auditor’s mindset and other factors promote the effectiveness of the new IA approach in a sustainable way. This chapter contributes to the literature by investigating how internal auditors can better fulfill their professional responsibility when adopting a conduct-focused approach.

Citation

Soh, W.G., Antonacopoulou, E.P., Rigg, C., White, L.F. and Bento, R.F. (2024), "Changing Internal Auditing from a Compliance-Based to a Conduct-Focused Approach", Shawver, T.J. (Ed.) Research on Professional Responsibility and Ethics in Accounting (Research on Professional Responsibility and Ethics in Accounting, Vol. 26), Emerald Publishing Limited, Leeds, pp. 1-21. https://doi.org/10.1108/S1574-076520240000026001