Can ethics be taught in accounting?

This paper extends the work of accounting educators and researchers who have sought to develop and implement effective ethics interventions in the accounting curriculum. Its purpose is to assess the influence of ethics interventions, integrated into a one-semester introductory auditing course at both the undergraduate and graduate level, on the moral development and ethical behavior of accounting students. Ethics interventions were based on the review and discussion of ethics cases following a well known pedagogical framework over the first 10 weeks of one academic semester. The effectiveness of these interventions was tested two ways. First, using the Defining Issues Test (DIT) and a pre/post-test research design, the moral development of accounting seniors and graduate students in four separate auditing classes was assessed. Second, students' unethical behavior, defined as excessive “free-riding” on an economic-choice experiment based on the Prisoners' Dilemma, was observed by the researcher. In summary, results of this study show that ethics interventions did not cause accounting students' level of ethical reasoning to develop (increase) and did not curtail students' free-riding behavior. Findings also provide evidence of an association between ethical reasoning and students' economic choices, where students with relatively low and high levels of ethical reasoning were most likely to engage in free-riding. The implications of these findings are discussed in the last section of the paper.     

Measuring moral judgement and the implications of cooperative education and rule-based learning

The Defining Issues Test (DIT), developed by Rest (1986) , measures a person's level of moral development using hypothetical social dilemmas. Although the DIT is useful for measuring moral development in social settings, it might not adequately capture an individual's moral judgement abilities in solving work‐related problems ( Weber, 1990 ; Trevino, 1992 ; Welton et al., 1994 ). In the present study, the moral judgement levels of 97 accounting students were measured over a 1 year period using two separate test instruments, the DIT and a context‐specific instrument developed by Welton et al. (1994) . The test scores are significantly higher on the DIT than the Welton instrument (between the instruments and over time), suggesting that accounting students use higher levels of moral reasoning in resolving hypothetical social dilemmas and lower levels of moral reasoning in resolving context‐specific dilemmas. The difference in test scores was highest during cooperative education (work placement programme), implying that the environment is a significant determinant on students’ test scores.     

Auditors' behaviour in an audit conflict situation: A research note on the role of locus of control and ethical reasoning

This study investigates the interaction effects of locus of control, a personality variable, and ethical reasoning on the behaviour of auditors in an audit conflict situation. Eighty experienced auditors from a sample of Big Six and Non-Big Six CPA firms in Hong Kong were provided with a case study involving an audit conflict situation and were asked to state the extent to which they would accede to the client's request. Subjects were also administered Rotter's Locus of Control Scale and the Denning Issues Test (DIT) to measure ethical reasoning. Analyses of the data using multiple regression found that ethical reasoning moderated the relationship between locus of control and the auditors' responses to accede to client's request in an audit conflict situation. An implication of these results is that the explicit recognition of both locus of control and ethical reasoning provides a better explanation for differences in auditors' ethical decision making.     

A rejoinder to commentaries on “Why DCF capital budgeting is bad for business and why business schools should stop teaching it”

This paper examines the effects of exposing accounting graduate students to professional ethics. First, a method of instruction that encourages students to consider the ethical implications of business decisions was developed. This instruction included exposure to Kohlberg's theory of moral development, study of professional codes of ethics, and extensive use of written and video ethics cases. Next, instructional effectiveness was assessed through a pre-post-test with control group design. An accounting-specific test instrument was developed and validated. This instrument contains decision scenarios designed to elicit and identify students' stages of ethical reasoning, Test results revealed that students receiving ethics instruction demonstrated gains in ethical reasoning within the decision context. Appropriately designed ethics modules can thus foster consisitent consideration of ethical issues in decision making.     

An international comparison of ethical reasoning abilities: Accounting students from Ireland and the United States

Accountants are often confronted with ethical decisions. Yet, some prior research indicates that both public accountants and accounting students in the U.S. may not have as high a level of moral reasoning as other professionals. One measure of moral reasoning ability is the Principled score, or P score, as determined by the Defining Issues Test. Prior research on accounting professionals and students using this measure has largely been confined to the U.S. This study compares the ethical reasoning abilities of American and Irish accounting students. We find that the mean P scores of American and Irish students are similar. However, gender and liberal/conservative attitudes are significant explanatory variables for moral reasoning ability across countries. In addition, our results show that students do correctly self-assess their moral reasoning abilities. We also find that those students with the lowest levels of moral reasoning abilities are the least likely to favor required ethics training in accounting programs. This may imply that students most in need of ethical training are less likely to seek this training.     

Discussion of “economic analysis of accountants’ ethical standards: the case of audit opinion shopping”

In his paper, Cushing (Cushing, B.E., (1999). Economics analysis of accountants’ ethical standards: The case of audit opinion shopping. Journal of Accounting and Public Policy 18 (4/5)) argues for an increasing role of “laissez-faire” approaches to professional accounting ethics. To formally present his argument, Cushing (1999) employs a classic auditor–client dispute over a financial reporting issue; the dispute’s resolution is framed within a prisoner’s dilemma game. Three increasingly sophisticated models are used to examine both strict (explicit rules and monitoring) and laissez-faire (moral training and leadership) approaches to induce ethical auditor play within the prisoner’s dilemma game.My comments are an effort to consider if Cushing's (1999) arguments for a laissez-faire approach are practicable. To do this I first relate Cushing's (1999) arguments to the theoretical attributes of a profession. Second, I extend his arguments to include ethical disposition. Two bases of ethical disposition are discussed, moral reasoning theory and the persona of individuals. I conclude that a movement toward a laissez-faire approach to ethics is a strategy the profession should not ignore.     

Is it Shameful to be an Accountant? GenMe Perception(s) of Accountants' Ethics

The function that accountants fulfil in the economic system is dependent on their ability to maintain the perception of high ethical standards. Building on the idea that birth cohorts, otherwise known as generations, are a useful proxy for the socio‐cultural environment of different time periods, we focus on the so‐called ‘GenMe’, that is, students and young workers born in the 1980s and 1990s. In particular, combining the accounting and business ethics literature, the purpose of our paper is to contribute to an increased awareness of the GenMe perceptions of accountants, with special attention given to ethical aspects. We believe that the perceptions of this age group are particularly crucial for the future of the accounting profession as it is these young people who will either become professional accountants or the accountants' future clients. Using an extensive database of 1,794 questionnaires, results show that the impression of the accountant as a corrupt professional is not dominant among GenMe and seem to suggest the existence of a multifaceted perception of accountants' ethics. Specifically, the factors that contribute to influencing GenMe perceptions of accountants' ethics are level of education, having attended an accounting course at high school level, gender, and belonging to the accounting profession. Finally, our study indicates that there is room for improving public perceptions of accountants' ethics through university courses in ethics, continuing education programs, and focused communication strategies by accounting firms and professional bodies.     

Moral will,accounting and the phronemos

This commentary examines the work of Everett and Tremblay (2014) and their contribution to critical accounting. They examine three key ethical dilemmas that confront modern accounting practice. They examine a set of in-depth interviews, the autobiography of the former Vice President of Internal Audit of WorldCom, Cynthia Cooper, and the documents of the Institute of Internal Auditors (IIA) to shed light on accounting and audit ethics. The dilemmas confronting the accounting profession are complex and multi-faceted, which they place in their socio-economic context using ideas from Pierre Bourdieu. I add ideas from Lovibond (2004),MacIntyre (1984) and McDowell (1993) as well as audit work by Jere Francis. My solution involves accountants acting like the phronemos. The phronemos is Aristotle's term for a wise and ethical person who has the capacity to judge and act appropriately. This ideal of the phronemos is used to examine the ethical ambiguities in accounting that involve analyzing the critical role that accounting curricula, education and pedagogy play in making better judgments. This critical accounting focus was also a focus in Chabrak and Craig's work on accounting education. They examined professional credentialing and professional education. Like Everett and Tremblay, they also point us toward the public interest role of accounting and our societal need for better and informed judgments. The comment concludes with the observation that Aristotle's notion of the phronemos is an ideal type that promotes virtue ethics to address the drift in accounting away from ethics and its public interest role.     

Management accounting practices in Europe: a perspective from the States

I provide a perspective from the States on four questions primarily based on information inManagement Accounting: European Perspectivesedited by Al Bhimani (1996). First, seven factors are identified as having shaped management accounting practices in European nations—academics, education, government, professional associations, consultants, technology, and the inter-nation transfer of information. Second, evidence supports the view that, across European nations, more changes are occurring in management accounting practice terminology and techniques than in the purposes and styles of using management accounting techniques. Third, evidence indicates that there is convergence across European nations in management accounting practices, especially in terminology and techniques, but less convergence in the purposes and styles of using techniques. Fourth, management accounting practices in European nations, particularly terminology and techniques, is converging on a global management accounting practice model. I propose that management accounting practices—particularly terminology and techniques—is converging across nations (at least for those firms that are affected by the global economy)anddiverging across industries both within and between nations.     

Conservatism,SEC investigation,and fraud

We present evidence on the relationship between firms that have engaged in fraudulent financial reporting and accounting conservatism. We empirically investigate the extent to which US firms identified by the SEC in their Enforcement Releases demonstrate higher levels of conditional conservatism in order to mitigate information asymmetry and agency problems. Specifically, by assessing the timing of changes in the litigation risk environment for fraud firms, we document how differences in heightened legal liability guide changes in conservative accounting behavior. Compared to a matched non-fraud control sample, we document that fraud firms have significantly lower levels of accounting conservatism in the pre-fraud period. Consistent with changes in potential legal liability, we find an increase in accounting conservatism for fraud firms during the SEC investigation period. Subsequently, during the public discovery of fraud, any increases in accounting conservatism are marginal and appear to converge back to lower levels compared to the SEC investigation period. Overall, our findings suggest more temporary changes in conservative reporting in the short-term for fraud firms. We also document that increased levels of accounting conservatism for fraud firms are not due solely to the passage of the SOX Act. Our findings aid in explaining fraud firms’ incentives and opportunities for accounting conservatism and lend support for why standard setters, regulators and auditors should continue to monitor and re-evaluate conservatism’s short-term effects that are conditioned on changes in a firm’s risk environment.     

Epistemic commitment and cognitive disunity toward fair-value accounting

This paper critically explores knowledge/professionalization relationships in a jurisdictional context characterized by shifting standards of practice. Focusing on the growing movement toward fair value within accounting standards, we examine practitioners' reactions to the growing compulsory application of fair-value accounting standards. To make sense of these reactions, we introduce the notion of epistemic commitment, that is to say one's degree of allegiance to a given knowledge template. Utilizing 27 interviews with Canadian experienced accountants, we rely on epistemic commitment to analyze the extent of variability in practitioners' reactions to the standardization movement toward fair-value accounting. Our analysis demonstrates an important level of variability in practitioners' epistemic commitment toward fair-value accounting, highlighting a lack of cognitive unity in the field. Our findings point to other important professionalization issues: practitioners' inclinations to refer to profitability issues when reflecting on the appropriateness of standards; practitioners' conception of accounting as an objective technology; practitioners' hesitations in voicing deep-level concerns over implementation ambiguities and lack of professional cognitive authority. Overall, our study raises doubts about the professional status of accountancy.     

The Ethics Development Model Applied To Declining Ethics in Accounting

This paper presents the Ethics Development Model (EDM) as a lens by which to view declining ethics in accounting and other business professions. The paper also provides a background on fraud (one type of ethical breakdown) and its causes. The EDM comprises personal ethical understanding, application of ethics to business situations, ethical courage and ethical leadership. The model is applied to declining ethics, teaching styles and educational responsibility .     

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.     

Professional–Organisational Commitment: A Study of Canadian Professional Accountants

This paper extends the literature on professional and organisational commitment through an online survey of professional accountants that examines the influence of several contextual features; namely, workplace diversification, occupational stress, professional involvement and culture. The survey was carried out around the end of 2002 with Canadian chartered accountants (CAs) from four Canadian provincial institutes. Three of these provincial institutes are located in English-speaking provinces (Alberta, British Columbia and Nova Scotia), while the fourth CA association is in Quebec, a predominantly French-speaking province. In contrast to prior research carried out more than two decades ago, our results indicate that respondents in public practice do not differ from respondents in non-public accounting settings in their level of professional commitment and in their level of organisational commitment. Our results also suggest that occupational stress and professional involvement are both significantly related to professional commitment. Finally, our survey data indicate that accountants working in Quebec had a lower professional commitment than their peers working in English-speaking provinces, thereby suggesting that culture exerts significant influence on professional commitment.     

Accounting as an affective technology: A study of circulation,agency and entrancement

This paper argues that accounting is an affective technology. We show how people’s feelings and emotions are constructed through accounting practices and templates. Much research in accounting and economics is based on rationality assumptions that suggest that people act after working through cost–benefit calculations. Information may be imperfect and our cognitive abilities constrained but such modes of calculation and economic reasoning are assumed to drive action. Whilst not setting aside the significance of rationality and intelligibility, this study illustrates that it is affect and passion alongside cognitive calculation that generate movement and action in organisational networks. An in-depth case study of a very large and well known global American corporation spanning 4 years illustrates how affect is engineered by corporate executives through accounting templates and targets. In local sites, periods of excitement and elation ensue but so do anxiety and sleepless nights as yet again, budgets are cut and stated targets rise. Productivity spreadsheets, planning pyramids and human resource programs all contribute to the circulation of affect in the global network as new identities (both individual and collective) are defined and underperforming employees managed out. The committed and devoted ‘Players’ of the organisation express love for the firm, tolerate inconsistent instructions and overlook what might (by outsiders) be conceived as breaches of trust. As such, they collaborate in their own entrancement. We conclude that accounting technologies play on people’s passions and emotions rather than purely on their intellectual and reasoning skills, and that it is this emotive edge to accounting that generates and sustains action in organisational networks.     

Principles‐Based Reasoning about Accounting Estimates

This article proposes a key principle and related concepts for reasoning about accounting estimates. The reasoning is consistent with a principles‐based professional judgment framework proposed by Ross Skinner and the Institute of Chartered Accountants of Scotland. The principle deals with reasonable ranges and related risk assessments in the audit of accounting estimates. It does so by using concepts first introduced by Boritz and Skinner and updates them for the requirements of CAS/ISA No. 540 and International Financial Reporting Standards. The article identifies the conditions for the existence of the benchmark ranges proposed by Smieliauskas in identifying fairly presented estimates. The need for a professional judgment framework and related guidance has been recognized recently by the International Federation of Accountants, a 2010 EU Green Paper, and the Public Company Accounting Oversight Board as a result of challenges auditors have been facing in the current reporting environment. This recognition echoes calls first made by Ross Skinner in his pioneering 1995 article, and reinforced by the FASB/IASB 2006 proposal for principles‐based accounting standards.     

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.