ACQUIRING GOOD ETHICAL JUDGMENT 161 SCENARIO 6 INTIMATE CONFLICTS to seen it. No
ID: 2430548 • Letter: A
Question
ACQUIRING GOOD ETHICAL JUDGMENT 161 SCENARIO 6 INTIMATE CONFLICTS to seen it. Now what do you do? at es ld The Situation Ralph Johnson is a CPA who is the head of internal audit of a mid-sized bank with ut $500 million in loans. One evening he just happens to walk into a bar on the about S outskirts of town at 10 pm to meet someone, and, as he walks in-the bar is very crowded-a face catches his eye, and it is the face of a female senior loan officer in s bank, Nancy Draper. He sees that she is having a fairly intimate drink with a major borrower, one of the largest developers in town Johnson freezes; he moves out of eyesight and is not quite The more he looks on at the scene, the more it seems obvious that this is not an 'extended business meeting. He decides to go out to the parking lot, because he knows what Draper's car looks like. His plan is to learn more by observing what happens next. Draper's car is parked in a poorly lit back section of the parking lot Judson therefore moves his car into position among the shadows, where he can have a good view. sure what to do. Not fifteen minutes later, Draper and the major borrower come out, and walking to her car, even before they put the key in the door, the developer acts in such a way that there can be no doubt as to the intimate relationship that exists between them. They next get into the car, steam up the windows, and he gets out and leaves half an hour later. Judson stays and observes until Draper drives off Question The next day Judson sees Draper at work and is not sure what to do. Draper's relationship with the major borrower/developer is a serious violation of bank policy. However, Judson is very concerned because he has heard rumors that Draper has also been intimate with the bank President-and Draper reports to the bank President. As head of internal audit, Judson has the authority to initiate a review of the loan relationship, but this would look suspicious and strange. He could of course contrive to review "certain lending relationships that the bank has"-which would just 'happen' to include this particular loan relationship, picked accidentally' for extensive review. However, that path is effectively closed to him, since a fairly comprehensive review of that sort was just completed, and for him to initiate a new review at this time would be regarded as inappropriate and perhaps even as a kind of harassment.Explanation / Answer
Answer: Second Possibility.
Judson should do nothing.
The observation did not come in the course of audit assignment. It was an accidental observation which may have created bias in the mind of the internal auditor.
According to integrity and objectivity principles of code of ethics of internal auditing, the internal auditor should exhibit highest level of professional objectivity in gathering, evaluating and communicating information. They should not be biased or influenced by their own interest.
As per attribute standards of internal auditing, the internal auditorhould have objectivity or unbiased mental attitude.
Moreover, fairly comprehensive review of lending relationship of the bank was carried out recently. A new review should not be done based on just an accidental observation outside the audit assignment.
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