Research on Professional Responsibility and Ethics in Accounting: Volume 18

Prior research suggests both formal and informal norms influence employee behavior. While increased training is a typical recommendation to strengthen formal norms by increasing adherence to organizational codes of conduct, and therefore improve ethical behavior, there is little empirical evidence that code training actually strengthens formal norms or improves ethics-related behavior. Conversely, prior observations of unethical behavior serve as strong indicators of informal norms. These observations may be unknown to management and therefore difficult to moderate using other means, including with training on a code.

We test the impact of prior observations of unethical behavior and training for a code of conduct on intentions to report unethical behavior in the future, as well as possible mediators of these relationships. We find some support that training on the code increases intention to report and strong support for the notion that prior observations of unethical behavior decrease intentions to report. Responsibility to report and norms against whistle-blowing both mediate the prior observation-to-reporting intentions relationship, but not the training-to-reporting intentions relationship. An interesting by-product of training seems to be that, by increasing awareness of unethical behavior, and therefore the salience of prior observation, training may have indirectly influenced intentions in the opposite direction intended.

Section 404 of the Sarbanes–Oxley Act (SOX) altered the relationship between auditors and their clients by requiring an external audit of companies’ internal controls. Regulatory guidance is interpreted and applied by external auditors to comply with SOX. The purpose of this paper is to apply service operations management theories and techniques to the internal control audit process to better understand the role regulatory guidance plays in audit services. We discuss service operations management theories that apply to the production of audit services and employ the operations management technique of simulation to examine the effects of a historical relationship between the client and the auditor, information sharing between the client and the auditor, and the auditor’s perceived risk of the client on the internal control audit process. The application of service operations management theories and the simulation results illustrate that risk and information sharing are key factors for the audit process. The results suggest the updated Public Company Accounting Oversight Board guidance from Auditing Standard 2 to Auditing Standard 5 appropriately increased audit effectiveness by encouraging risk-based judgments and information sharing. This paper merges accounting and service operations management research to examine the effects of regulatory guidance on the internal control audit process. The paper uses simulation to illustrate the importance of interpreting regulatory guidance and the specific effects of risk and information sharing on the internal control audit process.

This study investigates whether exposure to a previous client’s earnings management behavior will impact experienced auditors’ judgments of the risk that a current client’s financial statements are materially misstated. Contrast theory predicts the context of previous information can have a priming effect on a current judgment scenario, where the information for the current judgment is contrasted with the previous information. Guided by contrast theory, we exposed auditors to either positive or negative client ethical earnings management behavior. We found the existence of contrast effects, with the positive (negative) context of the previous client resulting in auditors judging a higher (lower) likelihood of material misstatement in the current client’s financial statements. The results have implications for the effectiveness and efficiency of auditors’ judgments as well as provide insight into auditor training efforts.

This research examines the effect of auditors’ personal debt on their audit decision making. We developed two different background scenarios that vary the level of the auditor’s personal debt. While one scenario indicated that the partner lived a modest lifestyle and was relatively free of debt, the other indicated that the partner lived an expensive lifestyle and had considerable personal debt. Our data indicate that auditors receiving the higher personal indebtedness scenario were more likely to believe that the auditor in the case study would sign-off on the audit without doing any additional work. We also found that the propensity to believe that the auditor in the case study would sign-off on the audit without doing any additional work decreased as the participants’ rank within the firm increased. Our research documents that a partner’s level of indebtedness could influence the participant’s audit decisions.

The rate of alliance formation by firms has greatly increased over the past two decades. Congruently, firm interest in corporate social responsibility (CSR) initiatives has also increased. Signaling theory suggests that firms may be increasing their CSR strategies in an effort to signal their willingness to operate within social mores. However, firms are faced with the problem of how to communicate their social commitment objectively to stakeholders. We argue that firms are forming CSR alliances in an attempt to signal an objective message to stakeholders concerning their commitment to CSR. To provide insight into these explanations, we compare the Total CSR performance (TCSR) scores of firms that form CSR alliances with those firms that do not. We control for firm size, leverage, profitability, and industry. We find that firms that form CSR alliances generally have higher TCSR scores, which suggests that one of the reasons that firms form these alliances is to publicize their stronger social and environmental records to stakeholders.

Independence is the cornerstone of the auditing profession. Even so, it is often assumed that acquiescing to the audit client when a disagreement occurs is more beneficial to the auditor-client relationship than asserting one’s independence (e.g., see Wang & Tuttle, 2009). We look more closely at the issue in the context of auditor-client management disagreements as recalled by experienced auditors.

We find that for most disagreements in which the auditor did not make any concession at all, the auditor-client relationship was either unaffected or strengthened. We find that a client’s use of pressure tactics did not appear to influence whether or not the auditor made a concession, but that a client’s use of pressure tactics, was associated with damage to the auditor-client relationship. The importance of the issue causing a disagreement was positively associated with the likelihood of the auditor staying with his/her initial position.

From an online survey of 114 participating accountants at staff, senior staff, and supervisor levels from a top-100 U.S. accounting firm, we investigate the effects of the Big Five personality traits (Conscientiousness, Agreeableness, Extraversion, Neuroticism, and Openness) on the ethical decision-making process of accountants. Within the framework of Rest’s (1986) Four-Component Model of Ethical Behavior, we focus on Component III, the formation of an intention to act upon one’s best ethical judgment. Based on the limited extant literature on the connection between personality and ethical behavior, we expect that accountants high in Conscientiousness and Openness will tend to form an intention to act ethically despite pressure in an ethical dilemma. We develop more tentative hypotheses about the remaining three factors. Controlling for age, gender, education, sole earning status, and experience, we find clear positive statistical effects of only Conscientiousness and Openness. These findings have implications for the human resource departments of accounting firms, as well as contributing to a basic understanding of the relationships between Big Five personality factors and ethical intention.

The accounting academy is facing two critical challenges: an increasing disconnect between academia and practice and a growing shortage of faculty. Recently, the Pathways Commission proposed that accounting programs more fully embrace professionally oriented faculty. This proposal is attractive because it would increase faculty numbers and bring a stronger practice orientation to the academy. Although there may be benefits associated with this proposal, there may also be significant unintended consequences. In this paper, we use two analogs from the NFL to highlight the risks in relying on practice-oriented faculty to solve our problems. We offer a series of reflection questions to promote further conversations on the Pathways Commission’s proposal.