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  • The Auditing Section
    A Reexamination of Behavior in Experimental Audit Markets:...
    research summary posted May 4, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    A Reexamination of Behavior in Experimental Audit Markets: The Effects of Moral Reasoning and Economic Incentives on Auditor Reporting and Fees
    Practical Implications:

    These findings suggest that auditors with lower moral reasoning scores (i.e., who tend to cooperate with close allies, but tend to be less cooperative with other parties) might in some cases better adhere to the profession’s duties.  Auditors with higher moral reasoning scores (i.e., who tend to view norms and rules as flexible and interpret them depending on a situation) are more likely to depart from auditing conventions and cooperate with others to their mutual benefit.  There have been similar findings, i.e. contrary to what we might expect in relation to moral reasoning, in other research settings.

    Citation:

    Schatzberg, J. W., G. R. Sevcik, B. P. Shapiro, L. Thorne, and R. S. O. Wallace. 2005. A reexamination of behavior in experimental audit markets: The effects of moral reasoning and economic incentives on auditor reporting and fees. Contemporary Accounting Research 22 (1): 229-264.

    Keywords:
    Audit fee, auditor reporting, cooperation, moral reasoning
    Purpose of the Study:

    In this study, the authors examine how “moral reasoning” (as measured by a commonly-used test) affects auditor reporting under different economic incentives, in an experimental setting.  In the audit of the financial statements process, cooperation between auditors and managers is important so that sufficient evidential matter can be obtained. The authors examine whether auditors are more or less likely to cooperate with management, based on the level of moral reasoning, and penalties for mis-reporting. 

    Design/Method/ Approach:

    The authors assign participants to either a “higher” or “lower” moral reasoning group based on each participant’s “higher” or “lower” score on a commonly-used moral reasoning test.  A lower score on the moral reasoning test indicates that the participant is focused on what is good for him or her whereas a higher score indicates the individual considers what is best for society.  Although not specifically stated in the study, the data appears to have been collected prior to 2005.  The participants used in this study were recruited from MBA classes.  Participants had to consider whether they would truthfully report a “low” outcome, or report “high” even though the outcome was low (i.e. cooperate with management), which would harm investors but economically benefit the participants.  The authors varied the level of penalty for misreporting to observe how this changes behavior. 

    Findings:
    • Moral reasoning and the economic penalty both significantly affected reporting behavior.  The smaller the economic penalty for misreporting the more frequently the participants tended to misreport.
    • As the economic penalty increased, truthful reporting increased.
    • When auditors engaged in “cooperative reporting behavior” (saying outcome was high when it was really low), managers tended to respond with cooperative contracting behavior (rewarding auditor participants).  Such cooperative contracting behavior was more frequent in higher moral reasoning groups, which is contrary to what we might expect (we would expect higher moral reasoning groups to report truthfully more often as opposed to less often). 
    Category:
    Independence & Ethics
    Sub-category:
    Impact of Fees on Decisions by Auditors & Managmeent, Moral Development and Individual Ethics Decisions
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  • The Auditing Section
    Does “Political Bias” in the DIT or DIT-2 Threaten Val...
    research summary posted May 9, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    Does “Political Bias” in the DIT or DIT-2 Threaten Validity in Studies of CPAs?
    Practical Implications:

    The results of this study are important for understanding the implications of previous studies which have used the Defining Issues Test (DIT) or its later version the DIT-2 to measure the ethical reasoning and moral development of CPAs. The authors note that determining whether there is a true correlation between political orientation and the DIT P score is an intriguing debate that remains unsettled. The authors suggest that political belief should not be ignored and should be considered by researchers and included as a control variable in future studies to prevent misleading results.

    Citation:

    Bailey, C. D., T. J. Phillips and S. B. Scofield. 2005. Does “Political Bias” in the DIT or DIT-2 Threaten Validity in Studies of CPAs? Behavioral Research in Accounting 17 (1): 23-42.

    Keywords:
    DIT, DIT-2, political bias, ethical reasoning, cognitive-developmental perspective
    Purpose of the Study:

    The DIT and the DIT-2 are tests commonly used by researchers to measure individual cognitive moral development or ethical reasoning ability. Individuals taking the DIT are presented with a series of ethical dilemmas and asked to choose the ethical argument which they view to be the most compelling. Individuals are then assigned a P score, which represents their level of ethical reasoning – a higher score indicating a higher level of reasoning. However, the DIT and the DIT-2 have been criticized as being seriously influenced by political belief. The purpose of this study is to examine whether political position explains a significant amount of variation in individuals’ P scores.

    Design/Method/ Approach:

    The authors collected responses from 741 CPAs taking the short-form DIT in 1995 and 261 taking the DIT-2 in 2001. Participants were also asked to respond to a conservatism scale which measured their political beliefs as either politically “liberal,” “conservative” or “other.”

    Findings:
    • The authors find that political orientation is in fact significantly correlated with the DIT P score and somewhat with the score generated by the DIT-2.
    • However, the authors note that the strength of the relationship between political orientation and P scores is encouragingly small and may mean that the correlation is not a cause for concern for previous research. They do not claim to settle the debate, however, and encourage use of political orientation as a control variable in the future.
    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions
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