Research on Professional Responsibility and Ethics in Accounting: Volume 24

This chapter assesses the impact of values change on the likelihood of reporting concerns for a situation of fraudulent financial reporting after a Giving Voice to Values (GVV) ethics intervention. The GVV curriculum shifts focus away from why actions are unethical to how one may effectively voice their values to resolve ethical conflict. After implementing this program in advanced accounting courses and empirically assessing the impact of the ethics intervention, the authors find that students have a stronger sense of the importance of values prescribed in professional codes of conduct and are more likely to speak up and confront unethical actions by voicing their values. GVV has the potential to increase the number of accounting professionals who are willing to speak up and confront unethical practices. The authors’ study appears to be the first to empirically test how a change in the perception of the importance of values impacts the likelihood to report concerns to members of the management hierarchy, filling an important gap in the literature.

This chapter examines the integration of Giving Voice to Values (GVV) into an accounting ethics course. GVV has received a great deal of interest by business educators in the past decade and, more recently, by those accounting faculty who teach accounting ethics in a standalone course or as part of another course. This chapter describes GVV assumptions and principles that are helpful for any faculty considering adopting GVV. After a brief review of different instructional approaches for teaching accounting ethics, GVV literature relating to accounting ethics is examined. The integration of GVV builds on the Kelly (2017) integration of leadership topics in an accounting ethics course and synergistically promotes moral motivation and moral character that contributes to ethical behavior. To facilitate the integration efforts, this chapter presents specific learning objectives, GVV background materials, case recommendations, and application/assessment approaches. This chapter concludes with a discussion of GVV and its possible role in assurance of learning efforts.

This chapter explores practical wisdom’s role in managing the application and use of soft skills. The authors explore how practical wisdom can connect technical and soft skills by developing moral skill and moral will to enhance ethical decision-making. Given practical wisdom’s importance, the authors further examine its role in the experiential learning process and how experiential learning activities like the Giving Voice to Values (GVV) curricular offering can bring practical wisdom and soft skills into the classroom with modest effort and investment. Through the application of the GVV methodology to a case study, the authors demonstrate how practical wisdom can be used in accounting education to support and advance accounting students’ moral and skill development, and accounting educators looking to do so can use this chapter as a starting point.

This research is one of the first studies to examine the effects of CSR disclosures on a firm’s decision to purchase back their own shares of stocks. Additionally, the authors examine whether the effect of CSR disclosures is stronger than the effect of CSR performance on the decision to repurchase shares. Examining firms in the United States, the authors find that total CSR disclosures and the CSR disclosures related to the dimensions of social, environmental, and governance are significantly and positively related to the number of shares that a firm buys back. Additionally, the authors find that the effects of CSR disclosures are stronger for total and the CSR dimensions of social and governance than for CSR performance. For the environmental dimension of CSR, both disclosure and performance scores are significant. This research expands our understanding of the impact of CSR disclosure by showing the importance it plays in the decision to buy back stock and implies that firms that repurchase their stock are more socially responsive than firms that do not. Finally, it contributes to the growing literature on how CSR disclosure has a different impact than CSR performance on firm decisions and outcomes.

Given the conflicting attitudes that people have toward those who report wrongdoing and a lack of empirical research specifically examining subsequent hiring, it is an open question as to whether accounting professionals would want to work with former whistleblowers. The authors examine this question using an experimental design, in which participants evaluate an employment candidate before and after the person discloses having been a whistleblower. Four manipulations of whistleblowing are used in both a within-subjects and a between-subjects manipulation. The authors’ results demonstrate that accounting professionals’ intentions to recommend a candidate for hire decrease after they are informed that a strong candidate has a whistleblowing past. A candidate is viewed most negatively, however, when discovering malfeasance and electing not to blow the whistle internally. Moreover, when the whistle is blown internally and the superior takes no action, the candidate who remained silent and chose not to continue to push the issue is viewed more negatively than the candidate who proceeded to blow the whistle externally. Although a candidate having a whistleblowing past appears to pose a cautionary signal in the interview process, participants reacted more harshly when the candidate failed to act or lacked the durable moral courage to see the matter through to completion.

Recent reports suggest that employees have concerns about their company’s leadership and ethical environment. Despite more stringent regulations, top executives are continuing to pursue aggressive financial reporting practices by managing earnings. In this study, the authors find that individuals have more significant concerns about the workplace environment when the chief financial officer (CFO) manages earnings that result in personal gain relative to when the CFO manages earnings that benefit other stakeholders (i.e., employees and investors). Further, the authors show that this negative effect of earnings management for personal gain on workplace environment quality becomes more prominent when the control environment is weak and when the CFO possesses accounting expertise. The authors add to the body of academic knowledge on financial reporting, ethical leadership, and the workplace environment. Business practitioners can use our study to inform their decisions, particularly those about financial reporting and managing the workplace environment.

Effective internal control over financial reporting (ICFR) should either prevent or enable correction of any material misstatement in a firm’s financial statements. Independent auditors, guided by professional standards, prepare an ICFR audit report, which provides a gauge by which the public can evaluate the reliability of a firm’s financial information. A firm manager may be tempted to misstate financial statements if he/she perceives a substantial reward for doing so. This study examines whether managers and firms are rewarded for misstating their financial statements in situations where there are incentives to do so, specifically, when an industry-leading peer is fraudulently inflating its reported earnings. The authors test to see if managers experience an increase in compensation as a result of misstatement. The authors also test to see if their firms benefit from misstating via changes to their cost of capital. Results suggest that neither managers nor their firms benefit from managing earnings by misstating financial statements. These findings are important, because a manager who ex ante understands that misstating will not lead to benefits personally or his/her firm is less likely to misstate in the first place.

Ethical leadership is of great interest in the accounting profession. After numerous ethical and moral leadership failures over the last two decades, where accounting professionals played a significant role in the fraudulent behaviors that impacted individuals, businesses, and the economy as a whole, the profession has renewed its focus on promoting ethical behavior. To date, research contributing to improving ethical behavior in the accounting profession has been minimal. A plethora of research has identified the deficiency of ethical reasoning and conduct in accounting students and professionals but has provided minimal recommendations on how to improve the status quo. Earlier studies have also found that values based, ethical and transformational leadership behaviors contribute to leader effectiveness in the accounting and business professions. What has not been studied or identified are the specific ethical and transformational leadership behaviors that should be sought or developed in professionals that would improve the ethical conduct and effectiveness of accounting leaders. This study seeks to address the gap in the literature by using neuro network analysis to understand the individual components of ethical and transformational leadership that result in leaders that are more effective in the profession. It concludes that in this study of 212 accounting professionals, ethical leaders that: (a) communicate openly, (b) are trustworthy, (c) consider and support their subordinates’ interest and (d) are altruistic, with a selfless concern for the well-being of others and transformational leaders that encourage their followers to think creatively are innovative are more effective leaders.

Materiality is a critical and challenging auditing concept. To help auditors improve their materiality judgments, the authors provide examples from Judaism, primarily due to its longevity and the richness and variety of its stories. The authors show how Judaism interprets and applies materiality in many contexts. For each, the authors provide guidance on how auditors might apply these lessons to improve their materiality judgments. The authors examine five areas where Judaic examples can inform modern auditing including: (1) considering both quantitative and qualitative measures; (2) recognizing that small quantitative changes can lead to material qualitative effects; (3) understanding that ignoring small issues can become a slippery slope; (4) considering the importance of financial statement users’ needs in developing materiality criteria; and (5) prioritizing substance over form. In all examples, context is a critical factor to consider when applying materiality. These results should be of interest to auditors, financial statement users and others.

Classifying workers as either employees or independent contractors has significant financial consequences for the payer (usually a business) and the worker. The payer may be motivated more by the desire to avoid paying for employee benefits and employer payroll taxes than by doing the right thing and correctly classifying and paying the worker as an employee. Estimates are that the cost of such benefits and taxes may equal 20–30% of gross pay. When governmental regulations are unclear or enforcement is lax, many stakeholders suffer. This includes the workers, their families, their co-workers, and law-abiding employers as well as citizens (taxpayers) who must pay more than their fair share to provide adequate funding for related government programs and benefits. This is a global issue as evidenced by widely publicized lawsuits in many countries involving prominent defendants such as Microsoft, Uber, and Lyft. Software platforms used to distribute small jobs to temporary and part-time workers have resulted in the exponential growth of the gig economy. Such technology has also further enabled the misclassification of workers beyond what has occurred in years past. An ethical analysis to identify the many stakeholders and the impact of worker misclassification should be conducted to guide governments in developing and enhancing regulations for the pervasive issue of worker classification and to protect the rights of their workers and taxpayers.