Requirement
The entity demonstrates a commitment to integrity and ethical values.
Points of Focus
Sets the Tone at the Top
Requirement: The board of directors and management, at all levels, demonstrate through their directives, actions, and behavior the importance of integrity and ethical values to support the functioning of the system of internal control.
Establishes Standards of Conduct
Requirement: The expectations of the board of directors and senior management concerning integrity and ethical values are defined in the entity’s standards of conduct and understood at all levels of the entity and by outsourced service providers and business partners.
Evaluates Adherence to Standards of Conduct
Requirement: Processes are in place to evaluate the performance of individuals and teams against the entity’s expected standards of conduct.
Addresses Deviations in a Timely Manner
Requirement: Deviations from the entity’s expected standards of conduct are identified and remedied in a timely and consistent manner.
Considers Contractors and Vendor Employees in Demonstrating Its Commitment
Requirement: Management and the board of directors consider the use of contractors and vendor employees in its processes for establishing standards of conduct, evaluating adherence to those standards, and addressing deviations in a timely manner.
Explanation
Leadership must visibly model and enforce honest, ethical behavior — through defined standards of conduct, evaluation of people against those standards, and consistent correction when someone falls short. Auditors care because every other control depends on people choosing to follow the rules; a weak ethical tone undermines the entire control environment.
