type of risks, to ensure that governance processes are effective and efﬁcient and to assure
that organizationalgoals and objectives can be achieved.
In performing their job, internal auditors need to be objective and uphold the value of
integrity. This is not easy because,as compared with external auditors, internal auditors are
vulnerable to internal inﬂuence, powerful insiders (Suddaby et al.,2009) and ofﬁce politics
(Reynolds, 2000) and are under pressure to satisfy management demands (Roussy, 2013).
Thus, there is an issue whether the internal auditor can act professionally and ethically
(Everett and Tremblay, 2014). Because of that, the accountant generally, and the internal
auditor particularly, needs to be seen as a moral actor involved in shaping the morality of
the markets (Lehman, 2006;Shearer, 2002). Neu et al. (2013) found that when political
consideration is able to inﬂuence and frame audit judgements, it limits the likelihood of
auditors to detect and report potentially corrupt activities. Empirical research has shown
that if accountants are heavily exposed to questionable ethical behaviour, it increases their
level of acceptanceof unethical behaviour (Mirshekary and Carr, 2015).
Apart from that, an internal auditor needs to appreciate the value and ownership of the
information he/she discoversalong with the task by keeping it private and conﬁdential.The
auditor is also required at all times to maintainthe quality of his/her knowledge, skills and
experience in performing his/her duties. For those who are also a member of professional
organizations such as The Institute of Internal Auditors (IIA), values such as objectivity,
integrity, conﬁdentialityand competency are important principles and form part of the IIA’s
Code of Ethics. This code is established to promote an ethical conduct and culture in the
internal-auditingprofession (IIA, 2009).
Some of the biggest challenges and responsibilities that are increasingly critical for
internal auditors are their ability to deal with unethical and fraud issues. IIA’s
ImplementationStandard 2120.A2, for example, clearly states that the internal-auditactivity
must evaluate the potential for the occurrence of fraud and how the organization manages
fraud risks. On the other hand, Standard 2110 requires internal auditors to assess and
suggest actions to improve governance processes of the company that relate to
accountability, ethicsand value promotion in the organization (IIA, 2012). Although internal
auditors are not responsible for detecting fraud, they must have reasonable skills and
knowledge to indicate and sense the possibility of fraud and malpractices, including the
existence of unethicalbehaviour in an organization.
An internal auditor is also responsible for evaluating fraud indicators such as unethical
behaviour and to decide on a course of action to be taken, such as recommending more
robust and comprehensive investigations to be conducted. As posited by Schwartz and
Sharpe (2006), although an individual has skills, he/she also needs the will, that is, the
willingness to do it. In this context, an internalauditor must have the will to take a course of
action, although he will risk retaliation from the organization.This corresponds to the IIA’s
International Standards for the Professional Practice of Internal Auditing (ISPPIA), which
requires internal auditorsto have sufﬁcient knowledge to evaluate the risk of fraud and the
way it is managed by the organization.Therefore, internal auditors have to play an essential
role for evaluating the ethical-behaviourclimate in their organization.
This role becomes more signiﬁcant because, currently, the trend of fraud, corruptionand
unethical practices in Malaysia are on the rise. The KPMG Malaysia Fraud, Bribery, and
Corruption Survey Report in 2013 (KPMG Malaysia, 2013), for example, found that the
number of fraud cases among corporatecompanies in Malaysia is expected to increase in the
future, partly because of the ﬁnancial crisis (KPMG, 2013). Even so, many companies in
Malaysia are willing to manipulate their ﬁnancial statements, such as backdate a contract
and book revenues, earlier than they should be to meet ﬁnancial targets(Ernts and Young,