In my previous blog post, I commented on the dangers of assigning human characteristics to organizations. Specifically, I argued that assigning traits to the organization instead of the individuals who operate it provides an easy excuse for discounting immoral behavior as aberration.

Indeed, an organization’s reputation for honesty is often used to shield or overlook inappropriate actions, but as internal auditors, we must not allow for such missteps to go unchallenged. Once the precedent is set, there is an expectation that small slip ups will be tolerated or rationalized, and that is the beginning of a dangerous and slippery slope.

So where do we draw the line? Significant financial reporting errors, compliance failures, or fraud are easy calls, but what about actions that may be considered smart or strategic business decisions?

A number of good examples of the latter can be found in a rash of 8-K filings around the Thanksgiving holiday and Election Day in the United States. As reported by The Financial Times’ Agenda Week, these filings with the U.S. Securities and Exchange Commission (SEC) reflected a number of significant actions of interest to investors, including C-suite and board departures and appointments, and changes to compensation packages.

While it is impossible to prove, it would appear these companies chose to share potentially controversial news at a time when investors were less likely to be paying close scrutiny. If this is part of a strategic business decision, should internal audit be commenting on it at all?

Similarly, a number of organizations have been attracting the attention of regulators for their use of on non-GAAP reporting metrics. Most recently electric automaker Tesla was chided by the SEC for its use of “individually tailored” measurements in its August earnings release, as reported by The Wall Street Journal. Tesla has since resolved the issue with the SEC.

Increasingly, organizations are using non-GAAP reporting measurements to place a particular spin on performance. This is viewed as a smart business strategy that provides a more holistic – some would argue simply more flattering – view of earnings designed to inform the investor and protect and enhance the organization’s brand and reputation.

Both widespread practices offer examples of business strategies that are viewed as savvy but may push the envelope of integrity. In its traditional role, internal audit could assess the risks associated with these business practices against their potential for helping to meet organizational goals.

But in the context of organizational behavior, what message do these practices send to employees, customers, and investors? What impact do they have on corporate culture?

It would be naïve and unproductive for an internal audit function to question every business strategy that may stray into a gray area. In today’s cut-throat business environment, it would reflect an embarrassing lack of business acumen. But we must understand that the zeal for gaining a competitive edge can be the catalyst for rationalizing immoral behavior. Toshiba’s unrealistic earnings goals led to significant accounting misstatements. VW’s obsession with beating emissions standards led directly to its “dieselgate” scandal.

As internal auditors strive to become trusted advisors, we must find ways to embrace the competitive edge while remaining cognizant that business strategies can stretch the boundaries of moral and ethical behavior. Our assessment of right and wrong may be tested, so we must be able to throw a flag when our companies push beyond the boundaries of ethical behavior.

As always, I look forward to your comments.