Research on Professional Responsibility and Ethics in Accounting: Volume 23

This chapter examines the relationship between four variables indicating ethical disposition – ethical sensitivity, ethical reasoning, concern for others, and egocentrism – and trait professional skepticism (PS) (Hurtt, 2010) among 119 first-year auditors. While there has been research addressing the link between ethical dispositional factors and state PS in auditors (e.g., Shaub & Lawrence, 1996), there is a lack of research into the link between ethical dispositional factors and trait PS (Hurtt, 2010). The results indicate that trait PS is higher in first-year auditors with higher levels of ethical reasoning, concern for others, and egocentrism. More ethically sensitive auditors do not demonstrate higher levels of trait PS, however. The results provide evidence that auditors’ ethical dispositions influence their ability to have the mindset necessary to carry out the investor protection role that requires adequate PS.

The authors’ examination of corporate social responsibility (CSR) scores in dual-class firms provides a window on firms’ CSR performance when insulated from external pressure. Dual-class ownership confers greater voting rights on a superior class of shares held by insiders; consequently, managers of dual-class firms are insulated from external pressure from inferior class shareholders and, potentially, from society. The authors compare CSR scores in dual- and single-class firms and investigate the association between CSR scores and cash flow rights in dual-class firms. This analysis reveals that dual-class firms have lower CSR scores than their single-class counterparts and that CSR scores in dual-class firms are positively related to the relative cost of CSR borne by the superior class of shares. The findings suggest that external accountability encourages CSR performance, and CSR performance is higher when the superior class bears a smaller portion of the cost of CSR activities. It follows that the analysis suggests the importance of governance structures for encouraging CSR, and the dampening impact of cost to CSR performance.

This study explores the whistleblowing judgments and intentions of accounting students utilizing scenarios involving accounting earning’s manipulations and fraud. Individual differences affect how one makes decisions yet are rarely explored in the whistleblowing literature. As such, the authors conducted an exploratory study to determine if one’s cognitive style (the method a person uses to perceive incoming information and how they make decisions) affects whistleblowing judgment and intent. Using multivariate regression, the authors find that cognitive style significantly affects moral sensitivity, whistleblowing judgment, and whistleblowing intent. This chapter makes several important contributions to the existing literature. This is the first study that explores whether cognitive style affects moral sensitivity, whistleblowing judgments, and whistleblowing intentions. Second, it demonstrates that the models which exclude individual differences may be incomplete.

As in other countries, the accounting profession in the United States strives to hire and keep qualified professionals, who possess the technical competence and ethical character essential to accounting practice. The reputation of the profession has been periodically tarnished by a lack of ethical behavior on the part of some Certified Public Accountants (CPAs). This suggests a misfit between those in the profession and the ethical values toward which the profession strives. When CPAs commit unethical behavior, doing so creates a major problem for the profession. Research has shown that the congruity of personal values with organizational values, person–organization fit (P–O fit), is an important factor in the hiring, socialization, and retention of employees. This research compares the personal values of US accounting students with the personal values of leaders in the accounting profession. Personal value priorities were measured with the Rokeach Value Survey (RVS). The findings indicated that these samples of accounting leaders (N = 193) and accounting students (N = 516) significantly differed in the priority given to 24 of the 36 personal values. This result suggests a lack of P–O fit between accounting students and the accounting profession. These findings have implications for CPA firms in the United States, specifically with regard to hiring ethically “fitting” staff and fostering an ethical culture in accounting firms.

The Giving Voice to Values (GVV) program takes a unique approach to ethics education by shifting the focus away from a philosophical analysis of why actions are unethical to a focus on how individuals can effectively voice their values to resolve ethical conflict. The authors explore how peer feedback and peer assessment, when implemented within a GVV module, can increase students’ understanding of ways to resolve ethical dilemmas, increase student engagement, and increase confidence in confronting unethical actions. The findings indicate that the use of peer feedback and assessment increases students’ understanding of ways to resolve ethical dilemmas, increases confidence in confronting unethical actions, and student attitudes suggest that assessing peers is a way to learn from each other and enhances interaction/engagement of students in the course. The teaching methods described in this study can easily be implemented in any specific discipline or accounting ethics course.

The purpose of this chapter is to discuss the relationship between law and ethics in accounting. The primary arguments of the chapter are that law and ethics have between intertwined historically, that concepts of morality and ethics have permeated law and that laws are based on ethical and religious principles. As a result, it is important for accounting students and practicing accountants to understand the close relationship between law and ethics. The chapter defines the meaning of “legal” and “ethical,” and draws distinctions between these concepts. It also discusses historical relationships between law, morality and ethics in major religious traditions. The concepts of ethics expressed in Aristotle’s Nicomachean Ethics, and how these concepts influenced the development of law and ethics in Western philosophy are then discussed. In particular, the ethical principles of independence, integrity and objectivity as embodied in the Code of Conduct of the American Institute of Certified Public Accountants (CPAs) are recognizable in Aristotle’s premise, that moral virtue is situated at the mean between deficiency and excess and that ethics is oriented toward practical implementation of the good life through human rationality. The final section of the chapter discusses the application of law and ethics to accounting and in particular to the detection of management fraud.

The current study examines the effect of socialization on the inculcation of professional accounting values. Three sources of socialization are examined: public accounting firms, non-public accounting firms (industry) and accounting professional associations. Specifically, the study compares the professionalism of public and industry accountants. Consistent with expectations, the results suggest that public accountants have stronger beliefs in professional autonomy and self-regulation than industry accountants, and that industry accountants have stronger beliefs in professional affiliation, social obligation and professional dedication than public accountants. It was hypothesized that while professional associations promote all professional values, public accounting firms and industry have different promoting priorities. Public accounting firms foster beliefs in self-regulation and professional autonomy while industry opposes these values, resulting in public accountants having stronger beliefs in these values. Conversely, it was posited that industry encourage beliefs in professional affiliation, social obligation and professional dedication to a greater extent than public accounting firms. The result is that the industry accountants have stronger beliefs in these values than the public accountants. Investigating these issues increase understanding of the importance of the socialization process fostering accounting professional values and identifying areas of potential conflict and reinforcement accountants face when working in public accounting and industry.

This chapter explores cultural factors that influence the propensity to blow-the-whistle in China, Taiwan, Russia, and the United States. This study found that culture and traditions have strong impact on the propensity of whistleblowing. This research analyzed 1,541 working adults in China, Taiwan, Russia, and the United States. Statistical analysis of self-developed questionnaires reveal that: (a) Americans have a greater disposition to engage in whistleblowing than Chinese, Taiwanese, and Russian; (b) Americans have a smallest level of fear of retaliation to whistleblowers than Chinese, Taiwanese, and Russian; (c) the intention of Chinese, American, and Taiwanese to whistle-blow is influenced to a greater degree by position of wrongdoers than that of Russian; and (d) guanxi (personal relationships or networks) has a greater effect on the propensity to whistle-blow for Chinese and Taiwanese than for Americans and Russian. Auditors and managers need to be aware that employees in different cultures respond differently to factors that influence whistleblowing activities. The results of this study will help auditors and managers better assess risk and the effectiveness of internal controls and ethical standards.

The chapter examines the perceptions of a range of stakeholders regarding the ethics of earnings management (EM) by Libyan commercial banks. EM ethics research has largely been based on a questionnaire developed by Bruns and Merchant (1990). This chapter addresses the issue in two different ways. First, it directly examines the interviewees’ perceptions on whether EM is ethical or not. Second, stakeholders’ perceptions are surveyed using a set of questions that consider, for example, the effect of EM on others’ interests and whether EM is ethical if applied within General Accepted Accounting Principles (GAAP) and the law. A total of 28 semi-structured interviews were carried out with stakeholders comprising: preparers of financial statements, users, regulators, and academics. A questionnaire survey of stakeholders which yielded 102 responses (response rate 53%) was also carried out. Interview findings indicated that 50% of the interviewees have the view that EM is ethical. Questionnaire results, on the other hand, revealed that EM is agreed, on balance, to be perceived as unethical. However, if applied within GAAP and the legal framework it is perceived, on balance, to be ethical. The chapter provides insights into stakeholders’ perceptions of EM ethics. The findings are of particular relevance to the users, and specifically, the external auditor as well as current and potential investors. EM practices, according to the literature, degrade financial reporting quality and may affect economic decisions. Auditors should be aware that EM may be regarded as an ethical practice and therefore more scrutiny might be required. In terms of accountability a manager should be held accountable not only to shareholders but also to society as a whole.

Auditing textbooks include summary level coverage of the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, but textbook coverage is too brief to support a strong understanding of auditor independence. Independence rules have the force of professional law for the independent auditor (PCAOB, 2015). Threats to firm independence can arise from events and circumstances such as investments in the client, loans from the client, past-due fees, contingent fees, deposits in the client, gifts and job offers. Student test results from a five-year rotation of alternative auditor independence lecture support materials demonstrate that using the actual AICPA Code of Professional Conduct reduces student performance. However, this drag on student performance was mostly offset by the positive impacts of simultaneous use of an independence decision tree developed for this chapter and tested as a teaching material for classrooms use.