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    The Impact of Authority on Reporting Behavior,...
    research summary posted July 28, 2015 by Jennifer M Mueller-Phillips, tagged 06.0 Risk and Risk Management, Including Fraud Risk, 06.04 Management Integrity 
    The Impact of Authority on Reporting Behavior, Rationalization and Affect.
    Practical Implications:

    These results increase the understanding of how an authority figure’s directions to misreport impact the rationalizations and resulting reporting decisions. Situational inducement can be a powerful force on behavior and affect. The authors show that the situational inducement of being told to misreport enables individuals to mitigate the emotional cost of misreporting. The authors document the apparent ease with which misreporting individuals rationalize misreporting behavior in the presence of authority. This result can also be prevented by a good culture and leadership.


    Mayhew, B. W., & Murphy, P. R. 2014. The Impact of Authority on Reporting Behavior, Rationalization and Affect. Contemporary Accounting Research 31 (2): 420-443.

    accounting fraud, rationalization, fraudulent reporting, fraud triangle
    Purpose of the Study:

    The authors conduct an experiment to examine reporting choices, rationalizations, and emotional responses when an authority figure directs participants to misreport. Several accounting scandals reportedly involved an authority figure instructing subordinates to perpetrate fraudulent financial reporting. The authors utilize the fraud triangle in their research setting to connect the theory of moral disengagement to the rationalization leg of the triangle. The fraud triangle suggests that three elements are necessary for fraud to occur: opportunity, motivation, and attitude/rationalization.

    The experimental reporting setting provides opportunity by allowing participants to report any income within the range of possible income. It also provides motivation by paying participants the income they report rather than the income they earn. The authors manipulate the setting to allow for ease of rationalization, by using an authority figure who instructs participants to misreport. When told to misreport, participants can rationalize their misreporting behavior by displacing responsibility. In a mixed design, the authors vary when the authority figure instructs participants to misreport, either on the first or second of two reporting opportunities. This design allows us to open the “black box” of whether and how an easily accessible rationalization impacts behavior and resulting emotion (affect).

    Design/Method/ Approach:

    The authors conduct an experiment using 88 participants recruited from an intermediate accounting class at a North American university. The average age of participants is 21 years. Participants listen to a lecture and complete two different multiple-choice quizzes. Each quiz culminates in an earned income based on the participant’s answers. Upon completing each quiz, participants learn their earned income and are then asked to report an income. They are paid what they report. The evidence was collected prior to 2014.

    • When not told to misreport before the first quiz, 49 percent of participants misreported. When the same participants were told me misreport 76 percent misreported.
    • When a separate set of participants were told to misreport after the first quiz, 72 percent misreported. They were not told to misreport after the second quiz, and 74 percent misreported.
    • When participants are told to misreport by an authority, they are significantly more likely to do so.
    • Misreporters rationalize their decision by displacing responsibility when they are told to misreport.
    • Misreporters in the authority treatments displace responsibility by saying, “I was told to” at significantly higher rates. The use of displacing responsibility fully mediates the relation between misreport instructions and misreporting behavior.
    • There are higher levels of guilt and discomfort (negative affect) among misreporters than honest reporters.
    • Misreporters feel increased negative affect. However, negative affect is significantly lower for misreporters who are instructed to misreport than those who misreport on their own volition.
    Risk & Risk Management - Including Fraud Risk
    Management Integrity