Ethical climate in Chinese CPA firms

Much concern has been expressed in recent years regarding the state of business ethics in the People’s Republic of China, and it has been suggested that unethical behavior is common both in the business community and in accounting firms. Despite such concerns, very little empirical research has been done on ethics in the Chinese public accounting profession, and no previous study has examined the ethical culture or climate in Chinese CPA firms. The current paper reports the results of a preliminary study of the ethical climate in local and international CPA firms operating in China, and the influence of ethical climate and personal ethical orientations on decision-making. Contrary to expectations, the perceived ethical climate in local firms was not more negative; however, auditors employed by local firms judged questionable actions as more ethical and indicated a higher likelihood of committing similar actions. Consistent with our hypotheses, perceptions of the ethical climate in one’s organization had a significant effect on intentions to commit ethically questionable acts. In addition, high relativists (who tend to reject broad moral principles in favor of situational analysis) were significantly influenced by the perceived organizational ethical climate, but low relativists were not similarly influenced.     

The civil justice system and going concern audit reports: Comments on “Auditors’ decision-making under going concern uncertainties in low litigation risk environments: Evidence from Hong Kong”

Lam and Mensah [Lam, K., Mensah, Y.M., 2006. Auditors’ decision-making under going concern uncertainties in low litigation risk environments: Evidence from Hong Kong. J. Account. Public Pol. 25 (6), this issue] provide some valuable insight on auditors’ choice of going concern audit reports in an environment where the civil justice system affords, from the standpoint of the plaintiff, fewer remedies and is more difficult to file a complaint than it is in the US. Hence, from the auditor’s standpoint, this environment can appropriately be described as a “low litigation risk environment”. In this comment, I first question whether a disclaimer of an opinion is any indication of either a quality audit or professionalism. Secondly, three alternative explanations for the empirical regularities are discussed. The Gatekeeper Story suggests auditors are simply not willing to risk reducing their reputational capital by acquiescing to clients that are not likely to survive their own financial distress. The Herding Story suggests that, when auditors are faced with uncertainties or a gap in the authoritative literature, auditors will herd together to form a common response that mimic one-another. The Value of Incumbency Story holds that as the value of incumbency declines with the client’s inability to survive, auditors will have fewer incentives to incur the incremental costs to gather sufficient competent evidential matter necessary to support an unqualified opinion.     

The ethics of enough

Enough is more than subsistence but is related to the ecological limits of the earth, our demands on them, and the other resources we need to live sustainable and meaningful lives. Ethics has a cultural and temporal context. In the West there has been the tussle between rational and moral ethics. The former prevailed as the benefits of science and technology emerged. Rational ethics is utilitarian, anthropocentric, and unsustainable. Moral ethics is struggling to replace its former “other worldly” and religious cloak with, at least, an ecocentric and spiritual cloak. The ethics of enough is explored in terms of needs and wants, right and wrong desires, means and ends, and, finally, moral virtue and happiness. Moral virtue alone, though, is unlikely to lead to happiness. Good fortune is also required, but cannot be acquired on one’s own. It has to be bestowed, by society or a just government, which in turn has to be created by the participation and actions of its members or citizens. Both enough and the ethics are to be found in good fortune.     

An “American Dream” theory of corporate executive Fraud

In this paper, we first describe a “Broken Trust” theory that was introduced by Albrecht el al. [Albrecht, W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship and Broken Trust. Journal of Forensic Accounting, 5, 109–130] to explain corporate executive Fraud. The Broken Trust theory is primarily based on an “Agency” theory from economic literature and a “Stewardship” theory from psychology literature. We next describe an “American Dream” theory from sociology literature to complement Albrecht el al.'s (2004) Broken Trust theory. Like the Broken Trust theory, the American Dream theory relates to a “Fraud Triangle” concept to explain corporate executive Fraud. Finally, we provide some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.     

Discussion of “The implications of unverifiable fair-value accounting: Evidence from the political economy of goodwill accounting”

Ramanna [2007. The implications of unverifiable fair-value accounting: evidence from the political economy of goodwill accounting, Journal of Accounting and Economics] provides interesting and novel evidence on how firms use contributions from their political action committees (PACs) to members of Congress as a means of lobbying for preferred positions on the two exposure drafts that led to SFAS-141 and SFAS-142. My discussion raises some concerns about his main conclusion: that pooling firms lobbied the FASB to obtain a “fair-value”-based impairment rule to facilitate their ability to manipulate financial statements. I offer a more benign explanation and make some other observations about how this line of research could proceed in the future.     

The influence of self-interest and ethical considerations on managers’ evaluation judgments

Recent empirical studies support self-interest as the sole basis for economic decisions (as predicted by agency theory). However, cognitive moral development (CMD) theory suggests that decision makers will allow ethical/moral considerations to constrain their economic behaviour. The purpose of this study is to resolve the essential conflict between the tenets of agency theory and CMD theory. The results of a laboratory experiment suggest that both moral reasoning level and adverse-selection conditions (self-interest) can have a significant effect on managers’ project evaluation decisions. Specifically, managers are likely to continue a project that is expected to be unprofitable only when adverse selection conditions are present and moral reasoning level is low. Thus, agency theory may not be generalizable to accounting-based economic performance.     

Ethics and accountability: from the for-itself to the for-the-other

Expanding global markets have resulted in renewed concern with accountability by transnational corporations and other economic agents. Reflections on economic accountability, however, often inadequately theorize necessary ethical presuppositions regarding the moral status of economic collectivities, including the scope of the moral community and the good that this community seeks. This essay addresses these ethical considerations. Taking as my starting point Schweiker's [Schweiker, W. (1993). Accounting for ourselves: accounting practice and the disclosure of ethics. Accounting Organizations and Society, 18(2/3), 231–252] claim that economic entities are properly accountable to a wider scope of good than their own by virtue of the accounts that accountants render of such entities, I argue that the discourse in terms of which the accounts are rendered serves to negate the very relation of obligation from which this accountability derives. Specifically, I argue that the discourse of neoclassical economics that informs accounting practice constructs the identity of the accountable entity such that it is obligated to pursue only its own good. Consequently, extant accounting practices are inadequate to meet the demands for accountability that are legitimately entailed by the act of rendering an account. I explore the implications of this conclusion for understanding economic accountability and related social accounting practices, and I propose the ethics of Emmanuel Levinas to establish a broader accountability on the part of economic entities.     

An analysis of the association of traditional demographic variables with the moral reasoning of auditing students and auditors

Accountants may be inadequate moral reasoners (Armstrong, 1987; Ponemon, 1992). Accounting ethics education research has suggested several approaches to improving the moral reasoning of accounting students (Langenderfer & Rockness, 1989; Ponemon & Glazer, 1990). This study uses independent samples of 91 auditing students and 207 auditors to evaluate whether demographic variables traditionally associated with higher levels of moral reasoning in other populations are associated with auditing students' and auditors' moral reasoning. Age and education, demographics traditionally associated with moral reasoning, were nonsignificant for both samples. Moral reasoning scores increased through the third-year staff level, and decreased from the senior through the partner levels. Women, subjects with higher grade point averages, and those who had taken ethics courses demonstrated higher levels of moral reasoning in both samples. The results indicate that accounting educators can influence the moral reasoning of the profession by recruiting and retaining bright students, particularly women, and by designing ethics education interventions that will help accounting students incorporate more than simply rules in making ethical decisions.     

An active learning strategy for the classroom—“who wants to win … some mini chips ahoy?”

Skillfully presenting technical accounting material has been identified as an important dimension of effective teaching [Issues in Accounting Education (1993) 8(2), 436]. Faculty may more effectively present material by modifying the traditional lecture approach to incorporate visual-based instruction and increase student involvement through active learning exercises. One approach to presenting accounting material more effectively is described in this article. A “Who Wants to Win…?” game, similar to that seen on television, is constructed with the instructor in the role of master of ceremonies and one class member, a group, or the entire class in the role of contestants. The method described can be adapted and used to present a variety of accounting topics. Anecdotal evidence from two very different college classroom settings indicates a high level of student enjoyment, increased class participation, and an increased level of advance preparation on the part of the students. While a significant amount of material is presented in a concise, novel, and effective manner, the game provides a relaxed classroom atmosphere for the students and an enjoyable method of presentation for the instructor.     

The diamond dilemma: a case study

This paper is a case study, and instructor's guide, of a moral dilemma faced by a chartered accountant. It is a contribution to the growing interest in business ethics exhibited by universities and business schools around the world. Reasons offered in support of a particular course of action are analysed using Kohlberg's Theory of Moral Development.

If I were teaching a course in ethics, I would teach Kohlberg's moral-development theory as the grist for the moral mill. (Thomas Lickona 1980, p.121)     

The accounting of “The Meeting”: Examining calculability within a “Fluid” local space

This study traces events in an empirical setting where a key local space, “The Meeting”, was made calculable. Building on field data from interviews and documentary sources at ABB Industry/Finland, the study theorizes in the interpretive genre, elaborating on the notion of the calculable space. It argues the following: Accounting can be extended into un-formalized and more elusive local spaces – into “fluid” spaces which are not clearly mapped within the organizational hierarchy, and which lie beyond recognized responsibility units or physically distinct cells at the factory floor. By opening visibility into the discretion of these “fluid” local spaces, a tighter alignment between programmatic ideals and real action at the organizational grass-root can be achieved. Self-devised non-financial measurement, mediating local tensions and the interests of “autonomous” actors, becomes the technology of government in this process of normalization – which is, however, not to be acknowledged as being unproblematic.     

Improving Ethical Attitudes or Simply Teaching Ethical Codes? The Reality of Accounting Ethics Education

ABSTRACT

Ethical instruction is critical in accounting education. However, does accounting ethics teaching actually instil core ethical values or simply catalogue how students should act when confronted with typical accounting ethical dilemmas? This study extends current literature by distinguishing between moral/ethical and legal/ethical matters and then re-evaluating the effectiveness of ethics training. A cohort of final-year accounting students with significant ethical training evaluated ethical scenarios. Half were moral (non-legal) and half contained legal as well as moral components. After further ethical instruction they re-evaluated the scenarios. Ethical attitudes towards legal/moral issues improved, but attitudes towards moral-only issues did not. This questions previous studies which purport to demonstrate the effectiveness of ethical instruction and queries the benefits of accounting ethics education. Are fundamental ethical principles being ignored in an effort to prevent more obvious accounting wrongdoings? Accounting ethics training needs to be reassessed if true ethical improvement is to be achieved.     

Financial instruments with sports betting components: Marketing gimmick or a domain for behavioral finance?

We examine theoretically and experimentally a certain class of new financial instruments which are designed as lotteries on the outcome of prominent sports events like the Soccer World Cup 2006. From a theoretical point of view, sports betting products may be superior to a fixed rate investment because of heterogeneous expectations, risk-loving behavior of investors or additional non-monetary utility components. In comparison to the direct placement of bets at bookmakers’, sports betting products may be preferable in cases of hedonic framing. Our experimental section, however, reveals the limited practical relevance of these theoretical arguments for “average” decision makers. Despite this, financial instruments with sports betting components offer a certain profit potential due to the diversity of preferences across individuals. Summarizing, the issuance of sports betting products may actually be mainly driven by marketing aspects, nevertheless sports betting products may be considered to be “viable” niche products with low cost of capital for banks.     

Financial accounting: In communicating reality, we construct reality

At first I saw Don Juan simply as a rather peculiar man who knew a great deal…but the people…believed that he had some sort of “secret knowledge”, that he was a “brujo”. The Spanish word brujo means, in English…sorcerer. It connotes essentially a person who has extraordinary…powers.I had known Don Juan for a whole year before he took me into his confidence. One day he explained that he possessed a certain knowledge that he had learned from a teacher, a “benefactor” as he called him, who had directed him in a kind of apprenticeship. Don Juan had, in turn, chosen me to serve as his apprentice, but he warned me that I would have to make a very deep commitment and that the training was long and arduous…My field notes disclose the subjective version of what I perceived while undergoing the experience. That version is presented here…My field notes also reveal the content of Don Juan's system of beliefs. I have condensed long pages of questions and answers between Don Juan and myself in order to avoid reproducing the repetitiveness of conversation…(The Teachings of Don Juan: A Yaqui Way of Knowledge, Carlos Castaneda, 1970, pp. 14, 24, 25).     

Economic analysis of accountants' ethical standards: The case of audit opinion shopping

The public accounting profession presently employs a strict system of ethical standards that relies upon explicit rules plus monitoring and enforcement procedures that penalize violations of the rules. An alternative approach to ethical standards that the public accounting profession may wish to consider is a laissez faire approach. Instead of rules and penalties to enforce desired behaviors, the laissez faire approach utilizes moral training and leadership to motivate professional accountants to act in the public interest, for the sake of the profession as a whole. The theoretical basis for the laissez faire approach is a growing body of evidence in economics and related disciplines that people often take actions to further the collective welfare of a group despite a detrimental effect on their own selfish interests. This paper offers a framework for examining the relative economic merits of the strict and laissez faire approaches to ethical standards within the accounting profession. The framework is based on game theory, and the setting employed in the paper involves opinion shopping by audit clients. The paper finds that the effectiveness of a laissez faire approach to ethical standards, at least in the opinion-shopping scenario, is related to (a) the ethical climate, which refers to the likelihood a given independent auditor will choose the ethical action, (b) the frequency of independent auditor rotation, which reduces the economic advantage of being the incumbent auditor, (c) the explicitness of Generally Accepted Accounting Principles (GAAP), which reduces uncertainty over whether or not a particular act is ethical, (d) the availability of opportunities to discuss ethical choices with rival auditors, and (e) disclosure requirements associated with auditor–client disputes over material accounting issues.     

Professional accounting development in Nigeria: threats from the inside and outside

Over the years several, sometimes conflicting, theories attempting to explain the development of professions have emerged. The “functionalist” and “interactionist” theories have since lost the spotlight to a more critical approach based on the Weberian concept of closure. Limitations in the concept and practice of this neo-Weberain concept have led to suggestions that research into the sociology of professions, should also include historical analyses of professionalism that capture historical specificities with the aim of generating theory that sees beyond “just massive historical variation” [Collins, R. (1990). Changing conceptions in the sociology of the profession. In R. Torstendahl, & M. Burrage, The formation of professions: Knowledge, state and strategy. London: Sage Publications]. Such research should also investigate the structural conditions under which the professionalisation process takes place [Johnson, T. (1977). The profession in the class structure. In R. Scase, Industrial society: Class, cleavage and control. London: George Allen and Unwin.]. In order to achieve this, there is the need to critically study the relationship of the State and the profession [Klegon, D. (1978). The sociology of professions: an emerging perspective. Sociology of Work and Occupations, 5, 3, 259–283.] and to document more extensively, the process, rather than the product, of closure [Chua, W. F., & Paullaos, C. (1993). Rethinking the profession-state dynamic: the case of the Victorian Charter Attempt, 1885–1906, Accounting, Organizations and Society, pp. 128–691; Chua, W. F., & Paullaos, C. (1998). The dynamics of “closure” amidst the construction of market, profession, empire and nationhood: an historical analysis of an Australian Accounting Association. Accounting, Organizations and Society, 23 (2), 155–187; Ramirez, C. (2001). Understanding social closure in its cultural context: accounting practitioners in France (1920–1939), Accounting, Organizations and Society.]. Such is the approach of this article, which focuses on the development of the accounting professions in Nigeria. It critically examines the profession/ State dynamics that have helped shape the outcome of the various episodes in the history of the accounting profession in Nigeria. An important influence in this dynamics is the nature of government in place (i.e. military or civilian).     

A writing intervention for the accounting classroom: dealing with the problem of faulty modifiers

Good communication skills continue to be viewed as critical for success in accounting. This paper demonstrates a writing-skills “intervention” that deals with faulty modifiers, a grammatical problem that can inhibit accounting students and professionals from achieving the clarity and conciseness widely regarded as essential in the accounting profession. The intervention consists of a handout distributed to students – fashioned to sensitize them to the pervasiveness of faulty modifiers and help them avoid the problem – and an in-class discussion of the handout. By design, this intervention is both inexpensive and unobtrusive. For the accounting instructor, we provide in the body of the paper a technical, but unpedantic and informal, analysis of faulty modifiers, including numerous examples of the problem, accompanied by alternative corrections. To date, few papers in the accounting education literature that deal with writing problems present direct assessment evidence. To assess the efficacy and perceived value of our learning intervention, we collected assessment data – both direct (i.e., a set of three diagnostic tests) and indirect (i.e., feedback from a student questionnaire) from two institutions at which our learning intervention was tested. These data suggest than an intervention of the sort described here can be valuable in remedying discrete weaknesses of student writing. In a larger sense, we believe our paper can be used as a model for the development of similar “interventions” that cover other grammatical problems, and that can serve either as stand-alone entities (similar to the method proposed by Reinstein and Houston (2004) [Using the Securities and Exchange Commission’s “plain English” guidelines to improve accounting students’ writing skills. Journal of Accounting Education, 22, 53–67]) or as complementary resources to more comprehensive and formal writing programs.     

Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?

This paper provides an in depth analysis of an investor’s reluctance to realize losses and his propensity to realize gains – a behavior known as the disposition effect. Together, sophistication (static differences across investors) and trading experience (evolving behavior of a single investor) eliminate the reluctance to realize losses. However, an asymmetry exists as sophistication and trading experience reduce the propensity to realize gains by 37% (but fail to eliminate this part of the behavior.) Our research design allows us to follow an individual’s behavior from the start of his investing life/career. This ability makes it possible to track the evolution of the disposition effect as it is reduced and/or disappears. Our results are robust to alternative explanations including feedback trading, calendar effects, and frequency of observation.     

Developing Learning Objectives for Accounting Ethics Using Bloom's Taxonomy

The purpose of our article is to offer a set of core knowledge learning objectives for accounting ethics education. Using Bloom's taxonomy of educational objectives, we develop learning objectives in six content areas: codes of ethical conduct, corporate governance, the accounting profession, moral development, classical ethics theories, and decision models. We believe that defining core knowledge is important for two reasons. First, many accounting educators continue to debate whether ethics can be taught, apparently unaware that a common body of ethics knowledge exists. This knowledge needs to be imparted before higher-level classroom discussions can ensue. Second, we believe agreement on learning objectives is necessary for the development of meaningful assessment tools. Students should be able to demonstrate ethics knowledge, and accounting educators should be held accountable for whether or not students are learning.