Developing and Measuring the Impact of an Accounting Ethics Course that is Based on the Moral Philosophy of Adam Smith

Accounting ethics failures have seized headlines and cost investors billions of dollars. Improvement of the ethical reasoning and behavior of accountants has become a key concern for the accounting profession and for higher education in accounting. Researchers have asked a number of questions, including what type of accounting ethics education intervention would be most effective for accounting students. Some researchers have proposed virtue ethics as an appropriate moral framework for accounting. This research tested whether Smithian virtue ethics training, based on Adam Smith’s “The Theory of Moral Sentiments” (1790/1976), is effective in improving accounting student’s cognitive moral development (CMD). This research used a pre-test, treatment, post-test, quasi-experimental design utilizing the Defining Issues Test 2 (DIT-2) instrument to measure students’ CMD. Analysis of DIT-2 gain scores did show a significant improvement in subjects’ personal interest scores and a significant improvement in an overall measure of CMD, the DIT N2 index, whereas their DIT-2 post-conventional scores did not improve significantly. This research supports the proposition that the concepts contained in Smithian virtue ethics can contribute to an effective accounting ethics education intervention. However, further research is required to determine what concepts should be included to improve accounting students’ post-conventional moral reasoning.     

The Relationship Between Political Attitudes and Moral Judgment: Examining the Validity of the Defining Issues Test

Most ethics studies employing accounting subjects have utilized the Defining Issues Test (DIT), generally finding the moral judgment abilities of accounting students and accountants to be less advanced than those of the general population (Ponemon and Gabhart, 1994). This study assesses the validity of the DIT by examining whether an individual can achieve a higher moral judgment score on the DIT by responding from the role of a political liberal. Accounting undergraduates, defining themselves as liberal, moderate or conservative, completed the DIT once from their own perspective and once from either an "extremely conservative" or "extremely liberal" perspective.The results indicate that DIT scores can be influenced by an aspect of political ideology not reflecting maturation in moral judgment. Subjects decreased their moral judgment scores when responding to the DIT dilemmas from a conservative perspective. Contrary to moral development theory, subjects were able to increase their moral judgment scores when responding from the perspective of a political liberal. These results imply that, given the generally conservative political orientation of the profession, the DIT may systematically understate the moral judgment abilities of accounting students and accountants.     

The Relation Between Policies Concerning Corporate Social Responsibility (CSR) and Philosophical Moral Theories – An Empirical Investigation

This article examines the relation between policies concerning Corporate Social Responsibility (CSR) and philosophical moral theories. The objective is to determine which moral theories form the basis for CSR policies. Are they based on ethical egoism, libertarianism, utilitarianism or some kind of common-sense morality? In order to address this issue, I conducted an empirical investigation examining the relation between moral theories and CSR policies, in companies engaged in CSR. Based on the empirical data I collected, I start by suggesting some normative arguments used by the respondents. Secondly, I suggest that these moral arguments implicitly rely on some specific moral principles, which I characterise. Thirdly, on the basis of these moral principles, I suggest the moral theories upon which the CSR policies are built. Previous empirical studies examining the relation between philosophical moral theories and the ethical content of business activities have mainly concentrated on the ethical decision-making of managers. Some of the most prominent investigations in that regard propose that managers mainly act in accordance with utilitarian moral theory (Fritzsche, D. J. and H. Becker: 1984, Academy of Management Journal 27(1), 166–175; Premeaux, S. and W. Mony: 1993, Journal of Business Ethics 12, 349–357; Premeaux, S.: 2004, Journal of Business Ethics 52, 269–278). I conclude that CSR policies are not based on utilitarian thinking, but instead, on some kind of common-sense morality. The ethical foundation of companies engaged in CSR, thus, does not mirror the ethical foundation of managers.     

Measuring Ethical Sensitivity and Evaluation

Measures of student ethical sensitivity and their increases help to answer questions such as whether accounting ethics should be taught at all. We investigate different sensitivity measures and alternatives to the well-established Defining Issues Test (DIT-2, Rest, J. R. et al. [1999, Postconventional Moral Thinking: A Neo-Kohlbergian Approach (Lawrence Erlbaum Associates, Mahwah, NJ]), frequently used to measure the effects of undergraduate accounting ethics education. Because the DIT measures cognitive development, which increases with age, the DIT scores for younger accounting students are typically lower, have limited range, and are not likely to vary sufficiently with corresponding choices in ethical dilemmas. Since the DIT measures only the moral judgment component of ethical decision-making, we consider the multidimensional ethical scale (MES) to allow respondents to provide explanations for their moral and other judgments. The MES has been used to measure attitudes related to justice, utility, contractualism, egoism, and relativism. Unfortunately, the MES is not comparable in one-dimension to the DIT, and unlike the DIT, the MES has no theoretical or objective base. Therefore, we construct a comparable one-dimensional relative measure, a Composite MES Score, obtained from previous research on practicing accountants. We compare the reliability of this measure to the DIT in explaining the ethical choices of 54 specially chosen, somewhat homogeneous students, whose ages range from 18 to 19, and who are taking a second semester freshman accounting course at a private, religion-affiliated university. These particular students are relatively untrained in the formal use of questionable accounting choices. These students are less likely to recognize the dilemmas of the MES and are also less likely to demonstrate sufficient variation in their DIT scores, traditionally low for freshmen students. As freshmen, they are recent graduates of high school and more likely guided by other ethical influences including friends, family, or contractual obligations (some of the MES constructs) rather than higher cognitive development. This study confirms suspicions. We find the DIT scores do not vary sufficiently to explain the moral reasoning of freshmen. For eight dilemmas and 24 choices we find the DIT score correlates with only three choices, whereas the MES regression models have at least one significant construct for 23 out of 24 ethical choices. The Composite MES Score (a relative measure) also explains 23 out of 24 choices and is statistically related to the DIT in only one of the choices. Unlike the DIT, the Composite MES permits pretest and retesting with different dilemmas to evaluate changes in ethical sensitivity. These results argue for relative rather than absolute measures of sensitivity and guides beyond cognitive development (the DIT-score) to explain undergraduate student sensitivity.     

The Influence of Native Versus Foreign Language on Chinese Subjects’ Aggressive Financial Reporting Judgments

Researchers have suggested that ethical judgments about “right” and “wrong” are the result of deep and thoughtful principles and should therefore be consistent and not influenced by factors, such as language (Costa et al. in PLoS ONE 9(4):e94842, 2014b, p. 1). As long as an ethical scenario is understood, individuals’ resolution should not depend on whether the ethical scenario is presented in their native language or in a foreign language. Given the forces of globalization and international convergence, an increasing number of accountants and accounting students are becoming proficient in more than one language, and they are required to interpret and apply complex ethical pronouncements issued by various global standard setters both in their native language and in English. There have been calls in the literature to examine whether subjects make systematically different ethical judgments in a foreign language than in their native language. We contribute to the literature by drawing on culture, linguistics, and psychology research to provide empirical evidence that Chinese subjects are more aggressive in interpreting the concept of control when providing their consolidation reporting recommendations in English than in Simplified Chinese. We applied a 2 × 2 within-subject and between-subject randomized experimental design using a sample of Chinese final year undergraduate accounting students at a leading Chinese university, where accounting courses are taught in both Simplified Chinese and English. Students in our study are proxy for entry-level accounting practitioners. Our findings have implications for the globalized business world and cross-cultural research by challenging the commonly held assumption that an individual’s ethical judgment is consistent in different languages. We suggest that systematically different ethical judgments in native and foreign languages needs to be recognized.     

An assessment of ethics instruction in accounting education

Business school faculty have begun to increase ethics instruction, but very little has been done to assess the effectiveness of this instruction. Curricula-wide studies present conflicting results of the effect of ethics integration into the business curricula. Several studies suggest that courses like business ethics and business and society might have an effect on the ethical awareness or ethical reasoning of business students. A belief of many individuals interested in business ethics is that students must be exposed to ethical awareness and ethical reasoning in business ethics and business and society-type courses and this should be supplemented by discussions of these topics in various business courses such as Accounting, Finance, Marketing, and others.This study reports the results of integrating a unit of business ethics into eleven accounting classes at two universities. An approach for measuring the effect of ethics integration into accounting and other business courses is suggested, and an assessment is made of the impact of ethics integration on students in accounting classes. Results indicate that the principles on which students rely when making moral decisions were affected by ethics integration. After ethics integration, students relied more heavily on the disclosure rule, the golden rule, and the professional ethic.Kenneth M. Hiltebeitel, Ph.D., CPA is an Associate Professor of Accountancy at Villanova University. He has included a unit on business ethics in his Auditing and Advanced Accounting classes for the past two years.Scott K. Jones, Ph.D. is an Assistant Professor of Accounting at the University of Delaware. He has included a unit on business ethics in his Cost Accounting classes for the past two years.     

Toward an Understanding of Dynamic Moral Decision Making: Model-Free and Model-Based Learning

In business settings, decision makers facing moral issues often experience the challenges of continuous changes. This dynamic process has been less examined in previous literature on moral decision making. We borrow theories on learning strategies and computational models from decision neuroscience to explain the updating and learning mechanisms underlying moral decision processes. Specifically, we present two main learning strategies: model-free learning, wherein the values of choices are updated in a trial-and-error fashion sustaining the formation of habits and model-based learning, wherein the brain updates more general cognitive maps and associations, thus sustaining flexible and state-dependent behaviors. We then summarize studies explaining the neuro-computational processes of both learning strategies—the calculation of prediction errors and valuation. We conclude by emphasizing how the incorporation of dynamic aspects in moral decision making could open new avenues for understanding moral behaviors in a changing world.     

U.S. CEOs of SBUs in Luxury Goods Organizations: A Mixed Methods Comparison of Ethical Decision-Making Profiles

This study involved using a mixed method research design to examine the moral philosophy difference between the ethical decision-making process of CEOs in U.S.-led and non-U.S.-led within the luxury goods industry. The study employed a MANOVA to compare the ethical profiles between the two leader types (US and non-US led) and a phenomenological qualitative process to locate themes that give indication as to the compatibility of the luxury strategy values and practices with the principles and concepts of responsible leadership and conscious capitalism. As the luxury goods industry is facing the first slowdown since 2000, pressure to achieve sales targets in the U.S. to make up for losses in other markets will place these CEOs under extreme pressure from their headquarters. These leaders must possess the ethical decision-making capability to balance legal and moral dilemmas unique to multinational luxury goods organizations while delivering business results in a challenging environment. Results of the study show no evidence of difference in the ethical decision-making profiles between the two groups of leaders. The themes and emergent findings resulting from the qualitative analysis indicate a profound incompatibility between the values informing decision-makers using the luxury strategy and those employed by leaders operating within the principles and parameters of responsible leadership and conscious capitalism. Recommendations for future research include replicating the study with a larger sample, within a different geographic region or comparing leaders using the luxury strategy to those using conscious capitalism.     

Toward a Model of Cross-Cultural Business Ethics: The Impact of Individualism and Collectivism on the Ethical Decision-Making Process

In this paper, we explore the impact of individualism and collectivism on three basic aspects of ethical decision making – the perception of moral problems, moral reasoning, and behavior. We argue that the inclusion of business practices within the moral domain by the individual depends partly upon individualism and collectivism. We also propose a pluralistic approach to post-conventional moral judgment that includes developmental paths appropriate for individualist and collectivist cultures. Finally, we argue that the link between moral judgment and behavior is related to individualism and collectivism.

Erratum to: Exploring Factors Affecting Digital Piracy Using the Norm Activation and UTAUT Models: The Role of National Culture

The model emphasizes the ethical dynamics of compassion in hospitality settings by suggesting that under an organizational ethical climate, the hotel staff will be more morally aware of peers’ pain and suffering, and motivated to participate in delivering compassion. Based on the positive psychology focus on compassion as individual states and traits supporting interpersonal dealings, the paper operationalizes compassion based on four individual factors involved in the compassionate process: (a) empathic concern, or an other-oriented emotional response elicited by and congruent with the perceived welfare of a person in need; (b) mindfulness, a state of consciousness in which attention is focused on present-moment phenomena occurring both externally and internally; (c) kindness, or understanding the pain or suffering of others; and (d) common humanity, or seeing others’ experiences as part of the larger human experience. Data were collected from 280 employees at ten hotels in the Canary Islands (Spain). With the exception of self-interest, results of multiple linear regressions demonstrate that each of the six interpreted factors of ethical climate has substantive effects on any of the studied elements of staff compassion. The egoistic-related and principle-related climate factors generated a more consistent and intense compassionate reaction, suggesting that the staff is moved to act out of compassion either to assure that the team succeeds or to support each other out of moral obligation.     

Ethical Reasoning and the Use of Insider Information in Stock Trading

The cognitive developmental theory of ethics suggests that there is a positive relationship between ethical reasoning and ethical behavior. In this study, we trained a sample of accounting and finance students in performing competitive stock trading in our state-of-the-art trading room. The subjects then performed trading of stocks under two experimental conditions: insider information, and no-insider information where significant performance-based financial awards were at stake. We also administered the Defining Issues Test (DIT). Ethical behavior, as the dependent variable was measured in a binary scale: whether the subjects used insider information for trading of stocks or not. Ethical reasoning as measured by the DIT P-score indicated statistically significant effect on ethical behavior. The results have important implications for recruitment and training of professionals engaged in the use of financial markets for securities trading.     

Business Cases and Corporate Engagement with Sustainability: Differentiating Ethical Motivations

This paper explores links between different ethical motivations and kinds of corporate social responsibility (CSR) activities to distinguish between different types of business cases with regard to sustainability. The design of CSR and corporate sustainability can be based on different ethical foundations and motivations. This paper draws on the framework of Roberts (Organization 10:249–265, 2003) which distinguishes four different ethical management versions of CSR. The first two ethical motivations are driven either by a reactionary concern for the short-term financial interests of the business, or reputational, driven by a narcissistic concern to protect the firm’s image. The third responsible motivation works from the inside-out and seeks to embed social and environmental concerns within the firm’s performance management systems, and the fourth, a collaborative motivation, works to bring the outside in and seeks to go beyond the boundaries of the firm to create a dialogue with those who are vulnerable to the unintended consequences of corporate conduct. Management activities based on these different ethical motivations to CSR and sustainability result in different operational activities for corporations working towards sustainability and thus have very different effects on how the company’s economic performance is influenced. Assuming that corporate managers are concerned about creating business cases for their companies to survive and prosper in the long term, this paper raises the question of how different ethical motivations for designing CSR and corporate sustainability relate to the creation of different business cases. The paper concludes by distinguishing four different kinds of business cases with regard to sustainability: reactionary and reputational business cases of sustainability, and responsible and collaborative business cases for sustainability.     

A Cross-Cultural Comparison of the Deliberative Reasoning of Canadian and Chinese Accounting Students

Absract  Using Hofstede’s culture theory (1980, 2001, Culture’s Consequences: Comparing Values, Behaviours, Institutions, and Organizations Across Nation. Sage, NewYork), the current study incorporates the moral development (e.g. Thorne, 2000; Thorne and Magnan, 2000; Thorne et al., 2003) and multidimensional ethics scale (e.g. Cohen et al., 1993; Cohen et al., 1996b; Cohen et al., 2001; Flory et al., 1992) approaches to compare the ethical reasoning and decisions of Canadian and Mainland Chinese final year undergraduate accounting students. The results indicate that Canadian accounting students’ formulation of an intention to act on a particular ethical dilemma (deliberative reasoning) as measured by the moral development approach (Thorne, 2000) was higher than Mainland Chinese accounting students. The current study proposes that the five factors identified by the multidimensional ethics scale (MES), as being relevant to ethical decision making can be placed into␣the three levels of ethical reasoning identified by Kohlberg’s (1958, The Development of Modes of Moral Thinking and Choice in the Years Ten to Sixteen. University of Chicago, Doctoral dissertation) theory of cognitive moral development. Canadian accounting students used post-conventional MES factors (moral equity, contractualism, and utilitarianism) more frequently and made more ethical audit decisions than Chinese accounting students. Lin Ge is an accountant at Guest-tek Interactive Entertainment Ltd. Her research interest includes ethics and judgment of accountants and auditors, cross-cultural studies and international business. Stuart Thomas, Ph.D., is associate professor of accounting in the Faculty of Management at the University of Lethbridge, Alberta, Canada. He has published in the Journal of Business Ethics, Business and Society, Research on Professional Responsibility and Ethics in Accounting, Advances in Management Accounting and the Journal of Accounting Case Research. His research interests focus on ethical decision making and the effects of pay schemes on performance and standard setting.     

Studying Ethical Judgments and Behavioral Intentions Using Structural Equations: Evidence from the Multidimensional Ethics Scale*

The linkage between ethical judgment and ethical behavioral intention was investigated. The Multidimensional Ethics Scale (MES) was used to measure ethical judgment ratings of hypothetical behaviors in retail, sales, and automobile repair scenarios. Confirmatory factor analysis on a sample of 300 undergraduate business students showed that a model with three latent variables representing three correlated ethical dimensions of moral equity, relativism, and contractualism, three correlated scenario latent variables, and correlated residuals presented a good fit to the data. Further, structural models of the relationship of ethical judgment to behavioral intentions revealed that behavioral intentions were more highly related to the scenario factors than to the ethical dimensions across three scenarios. Adding a method factor to the model improved goodness-of-fit and changed some structural model conclusions.

Changes in the Covalence Ethical Quote,Financial Performance and Financial Reporting Quality

We examine the equity valuation effect of press releases of upgrades or downgrades reflected in the Covalence Ethical Quote (CEQ), an index ranking the ethical performance of multinational firms. The index is updated quarterly and is comprehensive enough to include 45 criteria reflecting working conditions, impact of product, impact of production, and company institutional impact. Thus, it captures many dimensions of firms’ ethical performance that are not accounted for in previous research. Our research encompasses a joint test of the value relevance of the index itself and the impact of ethical reputation on a firm’s value. We find first a significant causal relationship between stock market reactions and changes in the CEQ. Specifically, disclosures of positive (negative) changes in firm ethical performance cause increases (decreases) in firm value. Second, cross-sectional analysis indicates a positive association between changes in firm ethical performance and both its financial performance and its financial reporting quality. Collectively, these results suggest that the CEQ conveys information that is useful to investors. Further, corporate measures taken to increase ethical performance are associated with positive benefits to shareholders. Finally, investors have concluded that good news about their firms’ efforts to be ethical is worth the cost.     

Age and entrepreneurship: nuances from entrepreneur types and generation effects

The literature on the relationship between age and entrepreneurship has been inconclusive. This study for the first time examines this relationship by extending the occupational choice literature to eight entrepreneur types and four generational modification effects in the USA. Multilevel mixed-effect logistic regression models are estimated to examine the age effects in entrepreneur type propensities. Generational modification effects are compared for the same ages across neighboring generations by hierarchical age-period-cohort (HAPC) models. We find that entrepreneurial propensity rises with age until around 80. The propensity of novice (versus non-novice) and unincorporated (versus incorporated) entrepreneurs has a U-shaped age trend dipping around age 60, while the propensity of full-time (versus part-time) declines since age 30s. The propensity of incorporated (versus unincorporated) entrepreneurs declines from ages 44 to 51 for Gen-Xers, but not for Boomers; this propensity also declines faster for Boomers than for Traditionalists from ages 63 to 70.     

The Untapped Relevance of Moral Development Theory in the Study of Business Ethics

The construct of cognitive moral development seemingly has powerful practical relevance in many areas of life. Nonetheless, moral reasoning seems of marginal relevance at best in the context of business ethics. Simply put, moral reasoning measurement indices are often only weakly related to many other apparently pertinent variables, and such findings cast doubt upon the construct validity of cognitive moral development. Many such unexpectedly weak relationships, however, may stem from two largely unrecognized methodological artifacts. The first artifact is an almost total reliance on the P index of the Defining Issues Test (DIT) designed to assess moral development even when this index may be inappropriate in a particular context. A second artifact that seems particularly salient in the context of attitudes toward authority involves a not always appropriate reliance on samples that include respondents whose moral reasoning is uncoupled from their action choices. These artifacts may restrict the amount of variance explained in observed relationships, and thus constrain the potential for moral reasoning to understand and explain behavior and attitudes relevant in the context of business ethics. Researchers are urged to use DIT D scores (in addition to P scores) in specific situations, and to examine relationships among high DIT U scorers whose moral reasoning is tightly coupled with their action choices. The application of these guidelines may have profound implications for advancing our fundamental understanding of moral reasoning, and of increasing its relevance to business ethics.     

The Role of Management Accounting in Ancient India: Evidence from the Arthasastra

The various forms of accounting practice have a long history. However, the focus of historical accounting scholarship examining premodern times has tended to be the genesis of double-entry book-keeping techniques. In particular, very few scholars have examined influences on the adoption of management accounting techniques in the ancient periods of India’s long history. We respond to this lacuna by examining management accounting at an organizational level within an ancient and economically successful society, namely the Mauryan period (322–185 BC). The aim is to explore management accounting practices implicated in the enforcement of economic and ethical behavior in the daily lives of Mauryan organizational actors. Drawing on a translation of original records in the form of a collection of texts known as the Arthasastra (lit. the science of wealth), this paper explores the intended uses of management accounting and, in particular, controls to persuade organizational actors to adapt the values and norms of wealth generation within the boundaries of socially acceptable roles. Our contribution is to highlight the society-oriented role of management accounting within Mauryan organizations.     

The Abandoned Stakeholders: Pharmaceutical Companies and Research Participants

Most discussions concerned with advancing the just and ethical treatment of research participants in developing countries have revolved around the moral principle of autonomy and the legal doctrine of informed consent (O’Neill 2002). However, if emerging ethical concerns are to be addressed effectively, the discussion needs to expand into the domain of business ethics where arguments addressing issues such as fair/appropriate compensation, entitlement, and corporate obligations to stakeholders are commonplace. The argument I present in this paper will conclude that emerging ethical considerations regarding the treatment of research participants in developing countries have evolved well beyond the scope of the principle of informed consent and that in order to resolve these concerns more appropriately and effectively, the new default or status quo should be to consider research participants as stakeholders of the sponsoring pharmaceutical company, even after the clinical trial is completed. This conclusion is significant because although it is fair to assume that, at some point in the timeline, most stakeholder theorists already do consider research participants stakeholders of the pharmaceutical company sponsoring the trial, the completion date of the clinical trial usually signifies and marks the termination of their stakeholder status and thus any consideration of what is owed further to the research participant.