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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
    A Test of the Selection-Socialization Theory in Moral...
    research summary posted May 7, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    A Test of the Selection-Socialization Theory in Moral Reasoning of CPAs in Industry Practice
    Practical Implications:

    The results of this study are useful for understanding what factors are influential in the moral development of CPAs. Practitioners should consider the results of this study when making hiring and promotion decisions. Results may also be informative to the development of ethical training programs.

    Citation:

    Abdolmohammadi, M. J. and D. L. Ariail. 2009. A Test of the Selection-Socialization Theory in Moral Reasoning of CPAs in Industry Practice. Behavioral Research in Accounting 21 (2): 1-12.

    Keywords:
    moral development; defining issues test (DIT), selection-socialization, Inverted-U
    Purpose of the Study:

    Past research on the moral reasoning of Certified Public Accountants (CPAs) has indicated that the the moral reasoning of CPAs in public accounting appears to increase from the senior to manager level but then decrease from the manager to the partner level (referred to as an Inverted-U Phenomenon). This phenomenon is consistent with Selection-Socialization Theory, which predicts that individuals at superior levels (e.g. partners) often promote employees with attributes similar to their own. This paper examines the existence of this phenomenon by collecting information on the moral development of CPAs in both industry and public practice.

    Design/Method/ Approach:

    The authors collected data (sometime prior to 2009) from 273 practicing CPAs. To measure their moral development, participants were asked to fill out the Defining Issues Test (DIT). The DIT is a generic instrument commonly used in research to determine an individual’s moral development within six stages. The six stages range from low levels of moral reasoning, characterized by self-interest, to higher levels characterized, by law abidance and adherence to universal principles of justice and human rights.

    Findings:
    • The authors do not find significant differences in the moral reasoning between accountants of different rank and thus, no evidence of the Inverted-U Phenomenon suggested by prior research.
    • The authors also did not find differences in moral reasoning between CPAs in industry and those in public practice.
    • Although there is no indication that gender or ethical training affects CPAs’ moral reasoning, the authors do find that CPAs with graduate degrees scored higher in moral reasoning than those with only undergraduate degrees and that politically moderate or liberal CPAs scored higher than conservatives.
    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions
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  • Jennifer M Mueller-Phillips
    An Examination of How Entry-Level Staff Auditors Respond to...
    research summary posted July 15, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.02 Impact of Fees on Decisions by Auditors & Management, 04.04 Moral Development and Individual Ethics Decisions, 04.09 Individual & Team Conduct - e.g., premature signoff, underreporting hours 
    Title:
    An Examination of How Entry-Level Staff Auditors Respond to Tone at the Top vis-a`-vis Tone at the Bottom.
    Practical Implications:

    These findings add to the understanding of how accountants respond to ethical tones at all levels within their organization and provide important evidence that the tone at the bottom is a key determinant, more so than tone at the top, of the ethical decision making of staff auditors. This study provides important insights into how ethical tone at multiple levels of an organization impacts entry-level employees’ ethical decision making. By recognizing the important role that immediate supervisors play in influencing their subordinates, organizations can more effectively promote an ethical culture at all levels of the organization and not simply at the top.

    Citation:

    Pickerd, J. S., Summers, S. L., & Wood, D. A. 2015. An Examination of How Entry-Level Staff Auditors Respond to Tone at the Top vis-a`-vis Tone at the BottomBehavioral Research in Accounting 27 (1): 79-98.

    Keywords:
    accountability, auditing, control environment, tone at the top, underreporting
    Purpose of the Study:

    The purpose of this study is to examine how entry-level staff auditors make decisions in the presence of sometimes conflicting ethical tones set by their supervising senior (tone at the bottom) and partner (tone at the top).

    The authors employ self-concept maintenance theory, which argues that unethical behavior becomes acceptable to the degree the action can be rationalized, is used to motivate this study. The low ethical tone of supervisors at the top and/or bottom may cause entry level staff auditors to construe unethical situations as devoid of ethical implications, such that entry level staff auditors may act more unethically if either (or both) of their supervisors exhibit a low ethical tone. Further, in-group bias theory, which suggests that individuals will be more influenced by close in-group members who are similar to them than by out-group members who are dissimilar to them, is used to predict that entry-level staff auditors will follow the tone set by their senior more than the tone set by a partner. This study also examines how individuals perceive their own ethical decisions under such conditions.

    Design/Method/ Approach:

    A 2x2 between-subjects experiment is administered to 114 graduate accounting students from a private university. 70 percent of participants had performed an internship and 72 percent had signed with an employer. Participants are told they went over budget on the number of hours they spent auditing cash and must decide how many to report. Ethical tone is manipulated using the tone from both the engagement senior and engagement partner. The evidence was gathered prior to September 2014.

    Findings:
    • The findings indicate that tone at the top and tone at the bottom interact, such that if either the partner and/or the senior exhibit low tone, then participants are more likely to misreport the number of hours they worked on the engagement.  
    • Participants are more influenced by the tone set by their supervising senior than that of their engagement partner. This suggests to the authors that tone at the bottom is a critical determinant of the ethical decision making of entry-level staff auditors.  
    • Tone significantly affects whether participants interpret the decision to underreport as an ethical dilemma. 
    • When both a partner and a senior exhibit high tone, participants are significantly more likely to interpret their decision on whether to underreport hours as an ethical dilemma than in the other conditions. This result suggests that poor tone causes individuals to cease considering the ethical implications of their decisions, thus allowing them to maintain a high self-concept when they violate organizational standards.
    Category:
    Independence & Ethics
    Sub-category:
    Impact of Fees on Decisions by Auditors & Management, Individual & team conduct (e.g. premature signoff - underreporting hours), Moral Development and Individual Ethics Decisions
  • Jennifer M Mueller-Phillips
    An Investigation of Ethical Environments of CPAs: Public...
    research summary posted June 22, 2017 by Jennifer M Mueller-Phillips, tagged 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry
    Practical Implications:

    Overall, having a clear understanding of ethical environment perception is important because it shapes behavior, influences views of reality, and identifies the relative strengths and weaknesses of ethical environments. The results from this study suggests organizations in industry may need to place an additional emphasis on developing and strengthening their ethical environments. They can accomplish this goal by providing ethics training, incentivizing ethical behavior, and having an ethical leadership style.

    Citation:

    Bobek, Donna D., D. W. Dalton, B. E. Duaghterty, A. M. Hangeman, and R. R. Radtke.2017. “An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry”. Behavioral Research in Accounting 29.1 (2017): 43.

    Keywords:
    ethical environment; public accounting; Big 4 firms
    Purpose of the Study:

    After numerous accounting scandals occurred at the turn of the 21st century, many argued the decline in ethical values and ethical environments within the accounting profession were to blame. This study investigates certified public accountants’ (CPAs) perceptions of the ethical environments in which they work. The authors compare CPAs in public accounting vs. CPAs in industry as well as CPAs working at Big 4 firms vs. CPAs working at international, national, regional, and local public accounting firms. It is hypothesized by the authors that accountants who work in public accounting will have a stronger perception of ethical environment than industry CPAs will. This is due to public accounting firms’ emphasis on professionalism, whereas industry tends to focus on commercialism. 

    Design/Method/ Approach:

    There are 904 participants from 4 different states. 803 of these participants work in public accounting while the remaining 101 are from industry. Respondents of the study assessed the ethical environment of their work ethic on a sliding scale. Regression analytics were performed on the results to test the perception of ethical environments

    Findings:

    The authors find the following:

    • CPAs working at public accounting firms perceive significantly stronger ethical environments compared to CPAs working in industry.
    • CPAs working at Big 4 public accounting firms perceive significantly stronger ethical environments compared to CPAs working at international/national, regional, and local public accounting firms.
    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions
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  • Jennifer M Mueller-Phillips
    Antecedents to Unethical Corporate Conduct: Characteristics...
    research summary posted November 15, 2016 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions, 04.06 Reporting Ethics Breaches – Self & Others 
    Title:
    Antecedents to Unethical Corporate Conduct: Characteristics of the Complicit Follower
    Practical Implications:

    The findings from these two studies illustrate that the susceptible follower problem associated with these characteristics is pervasive, influencing two steps within the ethical decision-making process. Furthermore, the results suggest that more than one in ten individuals are vulnerable in ethical dilemmas.  

    Citation:

    Mowchan, M., D. J. Lowe and P. M. J. Reckers. 2015. Antecedents to Unethical Corporate Conduct: Characteristics of the Complicit Follower. Behavioral Research in Accounting 27 (2): 95-126. 

    Keywords:
    ethics, toxic triangle, impulsivity and proactivity.
    Purpose of the Study:

    Despite the importance of ethical conduct in the accounting profession, many scandals in recent years have worked to shake public confidence in the ethics of the profession. Although the companies themselves, as well as members of the executive team, are often blamed for fraud, complicit fraudulent conduct by lower ranking accounting employees was also found in wrongdoing companies. Some court cases claim that if lower level staff accountants had refused to do as their supervisors asked and blown the whistle on the request, fraud could have been stopped entirely. Because of this, examining the characteristics of individuals at all levels of an organization to determine their impact on ethical conduct is important. The bulk of existing research has examined destructive leaders; very little research has centered on complicit followers. As such, the focus of this research is on complicit followers and, specifically, on three individual follower characteristics: impulsivity, authoritarianism/conventionalism, and proactivity. 

    Design/Method/ Approach:

    Two quasi-experiments were conducted among two separate groups of graduate accountancy students. 

    Findings:
    • The data show significant variations in the levels of these characteristics among master’s student participants.
    • The authors find that two of the characteristics individually, as well as two of the three interactions, have significant associations with intention for unethical complicity among subordinates and the ability to correctly identify ethical dilemmas in various accounting accruals earnings management and real earnings management contexts.
    • The authors find that low authoritarianism and high impulsivity, individually, lead to greater intention for unethical complicity among followers and reduced ability to identify ethical dilemmas.
    • The results reveal that individuals who are both low in authoritarianism and high in impulsivity are most willing to comply with supervisors’ requests for compliant misconduct and least able to identify ethical dilemmas.
    • The results reveal that willingness to resist requests for complicity in unethical conduct is strongest among individuals who are high in authoritarianism and high in proactivity.
    • The results reveal that the ability to identify ethical dilemmas is strongest among individuals who exhibit high authoritarianism and low proactivity.
    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions, Reporting Ethics Breaches - Self & Others
  • 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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  • Jennifer M Mueller-Phillips
    On the Operational Reality of Auditors' Independence:...
    research summary posted September 16, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    On the Operational Reality of Auditors' Independence: Lessons from the Field.
    Practical Implications:

    The in-depth study of real-life situations between auditors and auditees is crucial to be able to account for the micro-relational strategies deployed by auditors to navigate between capability and willingness, and to better understand the wide tactical repertoire used by auditees to interfere in the audit process, while formally complying with regulatory and legal constraints. The observations and analyses also have significant implications for accounting educators. Future public accountants should be taught to recognize the relational complexity of their work and the absence of clear boundaries between that which is internal and external to the audit process.

    Citation:

    Guénin-Paracini, H., B. Malsch, and M. Tremblay. 2015. On the Operational Reality of Auditors' Independence: Lessons from the Field. Auditing: A Journal of Practice & Theory 34 (2): 201-236.

    Keywords:
    audit negotiations, auditees, auditor competence, auditors, balancing acts, operational independence, organizational independence
    Purpose of the Study:

    Auditor independence, which has certainly been one of the most addressed topics in auditing literature, is a complex and ambiguous construct that can be analyzed along two dimensions. The first dimension, organizational independence, relates to auditors’ willingness to act in accordance with professional standards and to report errors found during the audit. The second dimension, operational independence, relates to auditors’ capability to work diligently and effectively in order to detect material anomalies. Surprisingly, “much of the debate has focused on the former, while the latter has remained largely under-discussed, if not ignored. In this paper, based on ethnographic data and semi-structured interviews, the authors examine the realities of auditors’ operational independence and discuss the practical and theoretical implications of their findings.

    Design/Method/ Approach:

    The authors monitored seven audit teams in real time in June and July 2002 and between November 2003 and July 2004. These teams included 44 auditors (nine partners, five managers, eleven supervisors [seniors], and nineteen assistants). The authors conducted semi-structured interviews with 31 auditors (four partners, three managers, eight supervisors, and sixteen assistants). Apart from two supervisors and three partners, all of these auditors worked for the teams observed. Interviews always occurred outside of the audited companies at the end of audit tasks and lasted about one hour each.

    Findings:

    The evidence suggests that auditors’ operational independence is both unsettled in practice and impossible to achieve through institutional measures alone. This view may challenge orthodox and regulatory conceptions of audit, but the smooth conduct of an audit engagement largely depends on the auditees’ desire to cooperate. Audit team members strive to cajole their hosts personally (through good manners and friendliness) and professionally (through discretion and services). At both levels (personal and professional), they try not to irritate but rather to satisfy their clients, whose interests seemingly have to be taken into account. When the moment comes to report and negotiate the correction of detected errors, integrative negotiation strategies are favored, the recourse to brutal enforcement options being avoided as much as possible. Here, the objective is to maintain the cooperation of auditees in the future.

    Audit, therefore, appears to be a complex balancing act between capability and willingness. The risk of lacking capability, however, seems to appear more frequently than the first one (risk of lacking willingness). Ultimately, it is shown that because official arrangements designed to guarantee operational independence are unlikely to be effective, the reality of auditor independence remains highly uncertain and needs to be constantly negotiated and renegotiated in the field.

    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions
  • The Auditing Section
    Revitalizing Accounting Ethics Research in the...
    research summary posted May 7, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions 
    Title:
    Revitalizing Accounting Ethics Research in the Neo-Kohlbergian Framework: Putting the DIT into Perspective
    Practical Implications:

    The findings of this paper are of importance for firms that are interested in accountants’ ethical and moral judgment. This paper provides a thorough and broad review on the usefulness of the Defining Issues Test (DIT). In addition, the authors propose a theoretical framework for research using the DIT. The authors suggest that ethical research should consider more components of ethical issues, such as moral sensitivity, moral judgment, moral motivation, and moral character. These findings and suggestions can help accounting firms in improving the ethical performance of accountants.

    Citation:

    Bailey, C. D., I. Scott, and S. J. Thoma.  2010.  Revitalizing Accounting Ethics Research in the Neo-Kohlbergian Framework: Putting the DIT into Perspective. Behavioral Research in Accounting 22 (2): 1-26.

    Keywords:
    Ethical judgment; ethical behavior; defining issues test; Kohlberg; Rest’s Four-Component Model
    Purpose of the Study:

    The Defining Issues Test of moral judgment (DIT and DIT-2) has been widely used in the ethics-related research in accounting and auditing in the past. Yet recently, some of the pioneers and influential thinkers in accounting ethics research feel that the DIT has outlived its usefulness or has been proven to be flawed as a measure of the ethical judgment of accounting professionals. Since there is considerable disagreement over the status and future of research using DIT as a measure of ethical judgment, the primary purpose of this study is to provide a thorough and broad review of the DIT-related accounting ethics research.

    Findings:
    • Neo-Kohlbergian theory  suggests that moral judgment develops through a series of stages, beginning with self-interest (pre-conventional), proceeding through a respect for society’s conventions and laws (conventional), and ultimately, in some people, developing to the highest level of postconventional (principled) reasoning.  
    • The DIT has been used to assess the moral development in professional schools. While Neo-Kohlbergian theory and the DIT is widely accepted, there are controversies associated with the theories.
    • The authors present a “Framework for research using the DIT”, as a way to organize research under the Neo-Kohlbergian theory.
    Category:
    Independence & Ethics
    Sub-category:
    Moral Development and Individual Ethics Decisions
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  • Jennifer M Mueller-Phillips
    The Effects of Professional Role, Decision Context, and...
    research summary posted July 16, 2015 by Jennifer M Mueller-Phillips, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions, 08.0 Auditing Procedures – Nature, Timing and Extent, 08.04 Auditors’ Professional Skepticism 
    Title:
    The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals.
    Practical Implications:

    In the study, subjects who are less relativistic are less likely to concede to the client. This study identifies an interesting gender difference with respect to the ethical decision-making process between male and female accountants. Given that the lines dividing auditors and tax professionals are increasingly being blurred, firms’ training programs should take into consideration both differences in context and individual differences in experiences due to professional roles. With the increased emphasis on firms’ ethics training, these results add to the premise that one size fits all training programs are unlikely to achieve the desired results, and that firms’ ethics training may need to be tailored to account for different individual approaches to decision making.

    Citation:

    Bobek, D. D., Hageman, A. M., & Radtke, R. R. 2015. The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals. Behavioral Research in Accounting 27 1: 55-78.

    Keywords:
    ethical decision making, auditors, tax professionals, gender, context, professional role
    Purpose of the Study:

    The purpose of this study is to investigate how professional role (auditor or tax professional), decision context (an audit or tax issue), and gender influence public accounting professionals’ ethical decision making.

    U.S. auditors are bound by professional standards to function as independent, objective evaluators of evidence, and to operate as professional skeptics. In the past decade, auditors have been under increasing attack for abandoning their professional skepticism charge.  Unlike auditors, tax professionals, while also having an obligation to the tax system, face a unique professional position of being required to advocate for their clients. U.S. tax professionals have faced increasing oversight and stiffened penalties in response to the marketing of tax shelters by CPA firms and the provision of overly aggressive tax advice. Tax professionals in the U.S. have become increasingly involved in audits with respect to clients’ tax provisions and the requirements of FASB ASC 740, particularly because income taxes are one of the most frequent causes of the Securities and Exchange Commission’s (SEC) Comment Letters sent by the SEC to its registrants. Thus, while auditors and tax professionals face different environmental constraints, they have both been under increased scrutiny in recent years due to lapses in professional judgment. the marketing of tax shelters by CPA firms and the provision of overly aggressive tax advice. Thus, while auditors and tax professionals face different environmental constraints, they have both been under increased scrutiny in recent years due to lapses in professional judgment. 

    Design/Method/ Approach:

    This study investigates the effects of professional role, decision context, and gender in ethical decision making using an experiment with 134 public accounting professionals with a mixture of auditing and tax backgrounds as participants. Participants are from seven different public accounting firm offices in two different U.S. states. The sample contained 87 auditors and 47 tax professionals separately, and 76 males and 58 females separately.

    Findings:

    The results show that male participants’ professional experience influences their ethical decision making, as auditors are less likely than tax professionals to recommend conceding to the client and to indicate that they would concede when faced with a contentious client issue. The results also indicate that context plays an important role in ethical decision making, as male professional accountants are less likely to recommend that a third party concede to the client in an auditing context than in a tax context, and are less likely to indicate that they themselves would concede.

    Furthermore, the results highlight the importance of individual attributes in making ethical decisions; in particular, accountants’ ethical judgments are influenced by relativism and firm size. In addition, an interesting gender effect is identified in that females appear to use a different decision-making process than males with respect to ethical situations. Specifically, except for the effect of relativism on behavioral intentions, the results obtained for the full sample of 134 professionals appear to be driven by the male participants. When males and females are analyzed separately, professional role, context, firm size, and moral intensity are not significantly related to females’ ethical decision making.

    Category:
    Auditing Procedures - Nature - Timing and Extent, Independence & Ethics
    Sub-category:
    Auditors’ Professional Skepticism, Moral Development and Individual Ethics Decisions
  • The Auditing Section
    The Impact of Positive and Negative Mood on the Hypothesis...
    research summary posted April 23, 2012 by The Auditing Section, tagged 04.0 Independence and Ethics, 04.04 Moral Development and Individual Ethics Decisions, 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind 
    Title:
    The Impact of Positive and Negative Mood on the Hypothesis Generation and Ethical Judgments of Auditors
    Practical Implications:

    The results of this study show that auditors in a negative mood performed better in a hypothesis generation task than did auditors in a positive mood. On the other hand, auditors in a positive mood made more ethical judgments on both a sample-size and inventory write-off ethical dilemma. The study increases our understanding of the effects of mood on auditors’ ethical and professional judgments. The results of this study may be helpful to audit firms in structuring their ethical policies and procedures and developing training programs. In addition, the influence of mood on hypothesis generation may be of particular concern considering the importance of analytical procedures to the audit process.

    Citation:

    Cianci, A.M. and J.L. Bierstaker. 2009.  The impact of positive and negative mood on the hypothesis generation and ethical judgments of auditors. Auditing: A Journal of Practice & Theory 28 (2): 119-144.

    Keywords:
    mood; auditor judgment; ethical tasks; hypothesis generation
    Purpose of the Study:

    Research in psychology and accounting has increasingly shown the importance of mood on decision-making.  One consistent finding in this line of research is that a negative mood leads to more systematic processing and a positive mood leads to more heuristic processing.  Additionally, prior theoretical work posits that a positive mood will improve ethical task performance while a negative mood will impair ethical task performance.  This study investigates the following questions:

    • Will auditors who are in a negative mood state use more systematic processing and therefore perform better on a hypothesis generation task compared to auditors in a positive mood?
    • Will auditors who are in a positive mood state make more ethical judgments than auditors who are in a negative mood state?
    Design/Method/ Approach:

    The research evidence was collected prior to June 2006. Internet questionnaires were mailed to auditors and a total of 54 auditors responded. Most respondents were affiliated with local or regional firms and were either staff- or senior-level. Participants were induced to either a positive, negative, or neutral mood state.  Each participant then completed 3 audit tasks:

    • Auditors were asked to generate plausible explanations for the significant change in financial ratios as part of an analytical procedure task
    • Auditors were asked to assess the likelihood of requiring the write-off of potentially obsolete inventory that would reduce the Company’s preliminary EPS. 
    • Auditors were asked to assess the likelihood they would report they had selected and tested too many sample items, once they found out what the sample size should have been (because they did not have that guidance initially).
    Findings:
    • Auditors in a negative mood provided significantly more explanations for the fluctuations in financial ratios than auditors in a positive mood and only marginally more explanations than auditors in a neutral mood.
    • There was no significant difference in explanations for the fluctuations in financial ratios provided by auditors in the positive and neutral mood.
    • Auditors in a positive mood appear to make more ethical judgments than those in a negative mood. Auditors in a neutral mood were measured between the positive and negative moods. When asked the likelihood they would recommend to the client that inventory be written off, auditors in the positive and neutral mood did not recommend a write-off of obsolete inventory differently. For the sample size question (would they report that they had over-sampled?), auditors in a negative and neutral mood did not rate the likelihood of reporting to their supervisor differently.
    Category:
    Independence & Ethics, Auditor Judgment
    Sub-category:
    Moral Development and Individual Ethics Decisions, Prior Dispositions/Biases/Auditor state of mind
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