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  • Following an understanding of accounting irms gleaned from the literature outlined in chapter one, chapter two reviews the literature on professional ethics and. Originality/value ‐ This is the only literature review that provides a comprehensive overview of research on trust and accounting. Thus, it is an aid to future. Download Citation on ResearchGate | Ethics and the Individual Professional Accountant: A Literature Review | No abstract available.

    accounting literature review ethics on

    The CTA was identified as a serious block in the steps that one needs to go through on the journey to becoming a Chartered Accountant. Having a clear understanding of Accounting knowledge can lead to finding ways that can make the subject more accessible to students from diverse backgrounds.

    It answers the following two research questions: Academics from nine universities and representatives of the South African Institute of Chartered Accountants participated in this study. Data was collected through interviews, observation and document analysis.

    Three universities provided documents on their practices, which included learner guides, examination papers, suggested answers, lecture notes, tutorials and other curriculum documents for each of the four CTA subjects. SAICA provided the competency framework and examinable pronouncements. This study used Critical Realism as its ontological underpinnings and Legitimation Code Theory as its substantive theory.

    Specialization establishes the ways agents and discourses within a field are constructed as special, different or unique and thus deserving of distinction and status.

    The principle of Autonomy is concerned with the extent to which the field is self-governing and can do things of its own free-will.

    The study found that the CTA has a hierarchical knowledge structure, which means that when new knowledge is created in Accounting it is integrated into existing knowledge, resulting in coherent and integrated knowledge.

    CTA also has a hierarchical curriculum structure. While horizontal curriculum structures evolve through the replacement of existing knowledge by new approaches and content, a hierarchical curriculum typically grows through integration and subsumption of new knowledge into pre-existing knowledge and it relies on the acquisition of knowledge developed in previous modules or levels of study. This volume explores various aspects of risk taking.

    It offers an analysis of financial, entrepreneurial and social risks, as well as a discussion of the ethical implications of empirical findings. The main issues examined in the book are the financial crisis and its implications for business ethics.

    The book discusses unethical behaviour as a reputational risk e. The book presents an analysis of the reasons leading to the crisis and identifies them as ethical dilemma structures. In addition, it looks at general questions regarding ethical behaviour and risk taking, such as: To what extent does the social embeddedness or abstraction play a role in guaranteeing ethical behaviour?

    What conclusions can be drawn from institutional or evolutionary perspectives on risk management? Finally, the book discusses further issues that become factors of risk within and between societies, such as work insecurity, corruption or the problem of facilitation payments as a risk in international transactions. Ethics in Value Theory, Miscellaneous.

    Financial Ethics in Applied Ethics. Moral Reasoning in Business in Applied Ethics. The framework is used to examine the relation between governance and business ethics, as proxied by diversity management DM , and financial reporting quality, as proxied by the magnitude of earnings management EM.

    The level of DM and governance quality are measured in accordance with the ratings of Jantzi Research JR , a leading provider of social and This DM score is part of an index developed by JR that investment managers use to integrate DM criteria into their investment decisions.

    As expected, a negative relation between corporate DM development and financial reporting quality is found while controlling for other factors known in the literatures on governance and accounting choices to affect earnings quality. Despite some caveats presented in conclusion, this study contributes to the ethics, governance, and financial reporting literatures by studying the dynamics between governance and ethics in the prevention of EM.

    This article explains how and why the Ignatian Pedagogical Paradigm IPP , a year-old approach to education, can serve as a framework for a modern principles-based ethics course in accounting. The IPP takes a holistic view of the world, combining five elements: We describe the components of the IPP and discuss how they align with suggestions from prior research for providing principles-based ethics instruction in accounting. We conclude by describing how we used the IPP as This study investigates the impact of job satisfaction and personal values on the work orientation of accounting practitioners in China.

    Satisfaction with work varies across individuals and how individuals view work i. We used the questionnaire from Wrzesniewski et al. J Res Pers 31, 21—33, to measure work orientation. The Measurement of Satisfaction in Work and Retirement. Our sample consisted of accounting practitioners from six major cities in China; were females and were males. We found that There were no significant gender differences in the work orientation of the respondents.

    Our study showed that the value types achievement and hedonism and satisfaction with promotion were significant predictors of the career orientation, while the value type benevolence and satisfaction with the present job were predictors of the calling orientation. Dissatisfaction with work was the major predictor of the job orientation. Furthermore, length of employment was positively associated with both the calling and job orientation, but negatively associated with the career orientation.

    The proportion of business ethics literature devoted to accounting and the proportion of academic accounting literature devoted to ethical issues are both small, yet over the past two decades there has been a steady accumulation of research devoted to ethical issues in accounting.

    Based on a database of more than articles gathered from a wide range of accounting and business ethics academic journals, this paper describes and analyses the characteristics of what has been published in the past 20 years It identifies and explores patterns and trends in publication outlets and the type of research conducted. Furthermore, through a comparison with issues that have been raised in the general business ethics literature, it offers guidance to researchers who intend to take the field of accounting ethics forward using empirical methods.

    The American Institute of certified public accountants AICPA has promulgated a Code of Professional Conduct , which has served as the primary ethical standard for public accountants in the United States for more than 20 years.

    It is now out of date and needs to be replaced with a code of ethics. Just as U. From this virtue ethics perspective, various rules of the AICPA Code are critiqued as being inadequate at best, and poorly crafted at worst. The article concludes with the proposition that principles-based ethics serves the profession and the financial reporting process better than the current rules-based approach.

    In particular, it has been noted that accounting and business education tends to prioritise the interests of shareholders above all other This paper reports on the results of a set of focus group interviews with both undergraduate accounting students and students commencing their training with a professional accounting body. The research explores their perceptions about the purpose of accounting and the objectives of business.

    The findings suggest that both university and professional students' views on these issues tend to be informed by an Anglo-American shareholder discourse, whereby the needs of shareholders are prioritised. Moreover, this shareholder orientation appeared to be more pronounced for professional accounting students.

    Socialism and Marxism in Social and Political Philosophy. Accountants are neither devoid of ethical dilemmas nor are they immune from financial scandals. In order to improve the credibility of the profession, it is important to study the personal values that qualified and trainee accountants consider important. For male respondents, age and years of professional experience were significant correlates of the importance attributed to head traits, while having religious beliefs was associated with valuing heart traits more.

    Finally, the implications for accounting education and the professional bodies are considered. The purpose of this study was to examine the dimensionality of a moral intensity construct in four ethical accounting scenarios and how the dimensions directly affect the specific processes of moral decision making of accounting students. A survey was conducted with accounting students enrolled in the school of accounting in a university of mainland China.

    Results indicated that the dimensions of moral intensity were significantly related to moral recognition, moral judgement and moral intention in relation to moral issues. Numerous accounting and economics research studies employ an experimental research method requiring student participants to make representations about an individual characteristic e. In response, many participants intentionally misrepresent the nature of that characteristic to receive a greater reward. Typically, such studies are deemed to be either exempt from review by institutional review boards IRBs or subject only to an expedited review.

    Moreover, investigators seldom debrief participants, purportedly to avoid contamination The authors question the ethics of inducing strategic misrepresentation and rewarding fraudulent behavior without appropriate debriefing. A theoretical framework of cognitive ethical development indicates that such research methods can be harmful to student participants.

    Furthermore, principles of operant conditioning suggest that the rewards reinforce fraudulent behavior. It is recommended that research studies inducing strategic misrepresentation should not be exempt from IRB review and should be required to include desensitization procedures for debriefing participants.

    Experimental Economics in Philosophy of Social Science. Accounting fraud may be the most pervasive type of fraud infecting modern corporations. As demonstrated by recent cases, such schemes may be facilitated by management directors and senior executives who know how to hide fraud within the camouflage of legitimate transactions, by non-management directors who fail to investigate obvious red flags, by ineffective internal control systems, and by accountants, lawyers, bankers and analysts who are captured by their clients.

    Executives who know of accounting fraud and take no steps to prevent This article proposes that both management and non-management directors who knowingly or recklessly engage in accounting and financial fraud are unfit to serve and should be barred from serving as officers and directors of publicly traded corporations. In particular, it proposes that non-management directors' reckless failure to respond to red flags may amount to an intentional omission of material information, and violate the Securities Exchange Act section 10 b , among other federal laws.

    Further, non-management directors who fail to take action should be found unfit to serve as company executives. Moreover, directors who knowingly or recklessly fail to halt or to disclose accounting fraud and similar unlawful behavior should be temporarily or permanently barred from serving as officers of directors of public corporations.

    This paper examines the UK's system for public oversight of financial and corporate governance disclosures by issuers and of auditors, taking account of the framework of European law and institutional arrangements within which that system operates. The paper examines the role of the public bodies that are responsible for oversight and how they relate to the Financial Services Authority FSA.

    By presenting a detailed picture of this part of the UK's supervisory infrastructure, the paper demonstrates that there is a more The paper also considers strategies that the various bodies employ to promote compliance so as to explain why analysis based exclusively on formal enforcement data is liable to be misleadingly incomplete.

    By seeking to improve the quality of the basic data about the UK and drawing out features of the system that may not be easy to capture in objective measurements, the paper contributes to the task of addressing the crucial question: This paper examines the relationship between organizational ethical culture in two large international CPA firms, auditors'' personal values and the ethical orientation that those values dictate, and judgments in ethical dilemmas typical of those that accountants face.

    Using an experimental task consisting of multiple judgments designed to vary in "moral intensity" Jones, , and unique as well as tried-and-true approaches to variable measurements, this study examined the judgments of more than three hundred participants in our study.

    Jones'' moral intensity argument is supported: Institutional investors are increasingly focusing on firms that prioritise Corporate Social Responsibility. In the absence of any objective measure of a firm's CSR Performance, their investment choices are largely guided by independent rating indices that rank firms according to their social performance metrics.

    As a result, firms looking to increase their attractiveness as targets of social investment focus their CSR efforts on increasing the visibility of activities that are recognised by such indices.

    However, the validity of these indices as accurate This means that the ability of these indices to measure and report on firms' actual social impact cannot be ascertained with any degree of accuracy. The result is that firms are incentivised to engage in activities that cannot be said to improve social responsibility, and may even ultimately harm society.

    Thus, another method of measuring CSP must be found that enables firms to measure their true impact on society. We propose a new approach to measuring CSP that is integrated with stakeholder theory. Such an approach provides managers of firms with an interest in engaging in real social development for the purposes of ensuring firm survival with the ability to understand their social obligations, and the ability to measure the resulting benefit to society.

    This paper seeks to determine the extent of anti-corruption information disclosure in the sustainability reports originating from Gulf countries. Focus primarily on the fight against corruption, this study utilizes a deeply-rooted content analysis technique of corporate sustainability reporting, covering 66 Gulf Cooperation Council GCC firms during Strengthened by the application of institutional theory, insight into the results points to a state of limited maturity regarding the disclosure of anti-corruption procedures in the region.

    More specifically, the results highlight the compliance Firms in Qatar and UAE ultimately release better informed reports; inclusive of detailed information on internal anti-corruption practices. Accounting Ethics, Misc in Applied Ethics. Ethical Audits in Applied Ethics. Social and Environmental Reporting in Applied Ethics.

    This research explores the relationship between work context and professional ethics. We argue that certain changes in the condition of work have made some categories of accountants more susceptible to the logic of commercialism rather than the logic of professionalism.

    We find general support for this argument. We observe that We further observe that accountants in large international accounting firms report lower commitment to auditor independence than do others in public accounting. And we observe that older accountants report stronger commitment to auditor independence.

    One finding, however, contradicts our general thesis. We conclude that changes in the context of work have contributed to the demise of ethics among professional accountants and suggest that further research be done to elaborate the relationship between client commitment and independence commitment. This study surveyed investors to determine the extent to which they preferred ethical behavior to profits and their interest in having information about corporate ethical behavior reported in the corporate annual report.

    First, investors were asked to determine what penalties should be assessed against employees who engage in profitable, but unethical, behavior. Second, investors were asked about their interest in using the annual report to disclose the ethical performance of the corporation and company officials. Finally, investors were asked if they If such reports are included with the financial statements, 32 percent of the investors surveyed would prefer to have them audited to provide independent verification.

    Stakeholder Expectations of Business in Applied Ethics. Social and Environmental Reporting. During the same period, corporate governance activists and institutional investors increasingly have called for increased voluntary governance disclosure. Despite this attention, there have been relatively few comprehensive studies of governance disclosure practices and response to the regulation.

    In this study, we examine a sample of 50 U. We find a high degree of variability in the presentation and reporting format choices for many elements of the governance structure. This variability includes several items for which disclosure is mandated by regulators or legislative action. In particular, smaller firms offer fewer disclosures pertaining to independence, board selection procedures, and oversight of management including whistleblowing procedures. There are also trends associated with board characteristics: Moreover, large firms provide more disclosures of independence standards, board selection procedures, audit committee matters, management control systems, other committee matters, and whistleblowing procedures but do not appear to have a strictly superior information environment when compared to smaller firms.

    The findings raise questions about compliance with regulatory requirements and the degree to which conflicts of interest between managers and directors are being controlled. While there have been notable improvements in the information environment of governance disclosures, there remain structural issues that may possess negative ramifications for stakeholders.

    Shareholder Activism in Applied Ethics. This article introduces compliance disclosure regimes to business ethics research. However, based on a report on experiences of existing compliance disclosure obligations, this article will identify major weaknesses that prevent them from It will be argued that regulatory recourse to compliance disclosure obligations is nonetheless worthwhile if we view them as mechanisms that can initiate a dialogue about norm interpretation, application and norm desirability.

    From this perspective, compliance disclosure obligations serve less to discipline companies by making corporate practices transparent, and more to trigger a process of norm development, in which the law, companies and their stakeholders interact. This article provides an illustration of how mandatory disclosure, if it is restricted to a unilateral communication process, may produce no effective results or even prove counterproductive , whilst highlighting the alternative potential of disclosure as an initiator of dialogue, supported by laws, geared towards the development and refinement of norms applicable to business in a global context and the values they promote.

    Proximity Ainity of auditor to victims or beneiciaries long-term client with business development potential versus anonymous shareholders. Concentration of efect If the efect of a inancial statement misstatement is concentrated on a single investor or creditor, the moral intensity is greater. Adapted from: Professionals focused on performing their professional tasks tend to ilter out the moral implications that are part of the decision context.

    Ethical codes Ethical codes have been deined in a number of ways. A useful working deinition in the context of the accountancy profession, is provided by Frankel , p.

    According to Abbott , ethical codes are the most concrete cultural form in which professions acknowledge their societal obligations. Parker argues that ethical codes seek to combat inequality in society while at the same time preserving inequality through their justiication of professional privilege.

    Moreover, it has been argued that professional ideology, as embodied in a code of ethics, is converted into a form of social power that can be wielded in the interests of the profession and to the beneit or detriment of the public interest Parker, Citron , p.

    Brinkmann and Ims identify conditions within the environment and processes, which, in turn, promote either positive or negative efects of ethical codes. Table 2. Openness and Organisation climate Pessimism, cynicism honesty Idealistic, inner Code intentions and Defensive, reactive, directed objective outer-directed Participatory, Code creation and Administrative, top- bottom-up procedure down Simple and abstract Sophisticated, Code content elements detailed elements Stimulation of Code implementation, Individual lip-service dialogue use and administration adjustment, blocking of dialogue and problem sharing Source: Brinkmann and Ims , p.

    Frankel classiied ethical codes as aspirational, educational and regulatory and he listed the following eight functions as deining the role of codes: Latent and negative: Such a claim is normally accompanied by claims for exclusive rights to practice.

    Where these are supported by explicit or implicit ethical codes, the public interest is said to be served both by the professional regulation of members and by protecting the public from unscrupulous and unqualiied practitioners Preston et al. Symbolic Nature of Ethical Codes In addition to serving structural-functional purposes Neu, , including providing guidance for ethical conlict resolution Reynolds, ; Brinkmann, , a number of studies have examined the symbolic nature of ethical codes and the use of such codes in legitimating the activities of accountants for example, Citron, ; Preston et al.

    It has been argued that the potential contradictions between accountancy as a profession and as a commercial enterprise can cause leaders in the profession to pursue legitimating activities Radclife et al. Legitimacy is conceived as congruence between institutional actions and social values and legitimation as actions that institutions take either to signal value congruency or to change social values.

    Neu explains the legitimation process as one by which the profession attempts to justify its right to exist to the State, other institutions, the general public and its members.

    However, because of the diversity of users and the visibility of services provided by the accountancy profession, accountancy difers in its need to convince uninformed users that accountants can be trusted and are legitimate.

    Neu argues that the profession uses impression management to this end. He concluded, based on an examination of discussion papers preceding the Statement, of the wording of the Statement itself, and of responses by 58 organisations and individuals, that the new statement: Whilst arguing that ethical codes operate largely in the private interest, Parker concedes that they also have a constructive and socialising impact upon accountants.

    Higgins and Olson , cited in Preston et al. Other studies have raised doubts about the ongoing ability of accounting bodies to efectively regulate major irms. Evidence is provided in this literature of a contradiction between rhetoric and practice in the context of the profession pursuing deviant behaviour. In particular, it is argued that big irms avoid sanctions by adopting delaying tactics in the face of adverse rulings by professional body disciplinary procedures see eg..

    Arnold and Sikka, ; Sikka, a; and Mitchell et al. Moreover, Rollins and Bremser , p. Institutional theory predicts that brand name auditors will be treated diferently by a regulatory agency. Brand name auditors have formal structures, policies and procedures to demonstrate conformity to institutional rules and constituent expectations, and they have greater auditing experience than most no-name brand auditing irms.

    A law in the process is perceived to be the inter-reliance of the State and the profession. On the one hand, the State grants a monopoly for audit services to speciied accountancy bodies. On the other, the DTI uses as inspectors, partners in irms which have been the subject of other investigations.

    Brilof independently investigated AAERs issued between and , thereby including an additional year over the Releases investigated in the Beasley et al. He concluded that there was a bias in the regulatory process. Brilof maintained that even where audit irms were obviously associated with high proile public concern cases, they were treated in a very benign way or not cited at all. Brilof acknowledged that the individual auditor failed in his professional duty in the particular case, but his argument was that the SEC efectively made a scapegoat out of the individual auditor while minimising the role of the irm Brilof, In the crucial tri-party corporate governance relationship involving shareholders, management and external auditors, the system ofers: In order to cope with the potential conlicts created by the demands of the public interest orientation of public accounting practice and responding to the commercial opportunities presented by economic and technological developments, the literature suggests that accounting practitioners walk a narrow ethical line.

    Some of the inevitable falls from grace are identiied in chapter three, where ethical dilemmas and challenges experienced by accounting irms and identiied in the literature are discussed. Many will undoubtedly ask: If everyone else is cheating, then how can an ethical person possibly succeed? Moreover, the expansion of the sphere of inluence of accounting irms was alluded to in the context of a professionalisation process that took place over years during which accountants increasingly formalised their occupational grouping and their control over speciic professional activities.

    Over this period of time midth century to date , accountants were portrayed in the literature as engaging in legitimising activities such as creating and maintaining a professional image by strenuously defending their right to self-regulation, appealing to the centrality of ethical codes to their philosophy and practice, and espousing a public interest focus. Zef b described the US profession as reaching the height of its inluence around the mids, while the s saw a substantial increase in critical questioning of the modus operandi, power and motives of the UK profession.

    Ethical dilemmas Ethical dilemmas for professional practitioners are a fact of life Leung and Cooper, In the context of accounting irms, these dilemmas arise when there are conlicting demands or opportunities in the course of delivering the expert services ofered by professional irms Stumpf et al. Commercial pressures on professionalism Complexities and volatilities in commercial activity, incentives and propensities for secrecy and obfuscation, conlicting interests among afected parties and the severity of the consequences of misjudgements conspire to ensure that the lot of an accounting professional is not an easy one West, , p.

    Commercial pressures on the ideals of professionalism in the past four or ive decades include the corporate merger movement of the s and the related rationalisation of the accounting profession. From an ethical and traditional public practice point of view, the consequences of these events are potentially dysfunctional.

    Moreover, commercial opportunities, such as providing non-audit services NAS or management advisory services MAS , arising from expanded and more complex business activities threaten, both perceived and real, auditor independence. Merging corporations retained only one of the two previous auditors and successive mergers of audit irms reduced client loyalty.

    Pressure to deliver improved earnings led to corporate opposition to constraints on freedom to select accounting methods. A gradual development within the Big Eight irms during the s was a signiicant shift in the posture of audit partners toward their clients, probably spurred by their perceived pressure to retain valued clients. Pressures on professional ideals also emanated from merger activity within the profession itself from the s Boyd, ; Zef, c.

    According to Boyd , the domination of power and concentration in ownership evident in the global accountancy profession was without parallel in any other profession. In addition to the profession responding to commercial opportunities with increased industrial concentration Beattie et al.

    Wilson , cited in Reinstein and McMillan, , p. Business risk was at an all time high, the underlying activities were remarkably diicult to measure reliably, and there were very strong incentives to manipulate reported numbers.

    However, Boyd , p. Somewhat earlier, Hanlon had explored the commercialisation of the profession. He provides valuable insights into the impact of intensiied competition for audit business between accountancy irms and the growing importance of non-audit business as a source of revenue and audit as a vehicle for securing other more lucrative business.

    Moreover, Willmott and Sikka , p. Although there is some evidence in the legal literature to suggest that clients attempt to dominate corporate lawyers and force them to provide certain services which prioritise commercial issues and proit, this area has yet to be addressed in relation to accountants Hanlon, Similarly this concept has been discussed in the legal profession as more lawyers are employed in multidisciplinary practices under the control of non-professionals or professionals who are not lawyers see Lucci, ; Shafer et al.

    Commercial ethos of accountancy irms Willmott and Sikka argue that in addition to the big accounting irms resembling multinational companies in their size and structures, they increasingly adopt a commercial ethos as distinct from a traditional professional culture.

    Hanlon refers to the long-standing tensions between the commercial side of accountancy irms tax, management services, corporate inance etc. Boyd, ; Radclife et al. Such investigation aims to achieve: Radclife et al.

    On the one hand, accountancy can be presented in terms that would be familiar to those who have examined the traits of professions, focusing on attributes such as commitment to a service ideal, self-regulation, ethical behaviour, specialised training and expertise. Yet, on the other hand, accountancy is also presented as a commercial or enterprising activity, with accountancy irms pursuing proit and growth, seeking new markets and products.

    Hanlon , p. In part, that is bringing in business but essentially proitability is based upon the ability to serve existing clients well Big Six Director quoted in Hanlon, , p.

    Gendron , p. Tables 3. Identiication with Higher Lower the profession Main objective of Serving the public Making proits audit work within a short to middle term horizon Main source of Challenge to carry out Remuneration motivation when audit engagements practicing Importance given Higher Lower to independence Source: In the US, the commercial ethos of accounting was reinforced in the late s by the trend of corporate entities such as American Express taking over CPA irms Shafer et al.

    One manifestation of the change in ethos of the accounting profession over the last quarter of the 20th century is the way audit fees have become increasingly subject to competitive forces placing pressures on irms to adopt cost reduction strategies.

    Threats to professionalism [A] profession is judged by the performance of its practitioners, and a failure on the part of one to meet expectations diminishes the whole Magill and Previts, It is extensively argued throughout the literature that the accountancy profession responded to the many opportunities ofered by economic, regulatory and technological advances of the 20th century by expanding the scope of services they ofered, despite the risk of undermining their image as independent, objective professionals of high integrity see eg.

    Brown, ; Citron, In fact, it is often argued that they used this image to their advantage: For example, the Public Oversight Board , p. Accounting numbers, with their aura of accuracy and objectivity have increasingly been used to evaluate, monitor and control a broader range of activities in society. In the s, US CPA irms began promoting themselves, not as auditors who served the interests of the public, but as client-service professionals who solved business problems Daly and Schuler, Evidence is provided in Citron of the relative increase over time in the UK of non-audit fees.

    Antle provides similar evidence for the US. Professional journals, such as Accountancy regularly report surveys of accountancy irm fees see, eg. September ; and October issues detailing trends in non-audit service fees paid by FTSE companies as a proportion of total fees paid to Big Four accounting irms.

    Beattie and Fearnley , p. Many of these trainees subsequently took senior and inluential positions with client companies.

    We will truly be a breakaway irm when our clients think of us as always being able to provide them with assistance with virtually any business or industry issue they face. He instances the growth in the provision of assurance services as an example of services where the dividing line between traditional audit and MAS is less clear-cut.

    Services such as risk assessment, systems reliability and entity performance measurement are included in these other assurance services. However, unlike audit, the profession has no monopolistic exclusivity over the provision of these services and must compete for market share.

    Early outspoken criticisms of the profession forewarned of events to come at the beginning of the 21st century. For example, Brilof , p. See, for example, Zef b; c and Wyatt ; A further example comes from Boyd , p.

    In the price-shopping and opinion-shopping turbulence of the s the audit increasingly became a commodity business which had declining margins, and which placed increased stress on the ability of audit irms to maintain a high level of professional integrity independent of those forces. Somewhat earlier, Brilof , p. Further, Wyatt and Cofee question whether the current situation of four global accountancy irms is efectively unmanageable from an ethics perspective.

    Ironically, the growth and structural changes in scope appear to have led to a concurrence of forces contributing to the historically low esteem in which auditors were held Wyatt, One of those perceptual gaps is the much discussed expectations gap which refers to diferences between perceptions of the large irms and of society generally in regard to the duties and responsibilities of independent auditors Baker, ; Gaa, Attempts by the profession to reduce the expectations gap include: Young , p.

    In the mids, auditors in the US accepted a more direct responsibility for fraud detection in exchange for a reduction in legal exposure in fraud cases Young, Consequently, they facilitated abandoning responsibility for detecting fraudulent inancial reporting. Firm Culture Models of ethical decision-making commonly recognise that contextual factors such as organisational or professional norms have a signiicant impact on behaviour in business contexts Jones et al.

    In the context of accounting irms, previous research has shown that the ethical climate of the irm heavily inluences auditors in their ethical reasoning process Windsor and Ashkanasy, ; Ponemon, Accounting irms may have high standards and a good reputation, but individuals within the irm may gain personally from behaviour that is inconsistent with high ethical standards, such as giving in to pressure from clients Fearnley et al. Wyatt, ; Zef, c; Brilof, Firms were known to stand up to clients where they disagreed on principle with a particular accounting treatment Wyatt, ; Zef, b.

    Audit irms were smaller, and leaders and role models were more visible and accessible. Partners in audit irms spoke out forcefully on issues of the day, often without regard to whether clients would ind their opinions objectionable.

    Professional behaviour was more explicitly developed through apprenticeships, and pre-requisites for promotion to be qualiied accountants. For example, Wyatt , p. Singleton-Green , p.

    According to Wyatt, the following phenomena contributed to the changed culture: In the context of global accounting irms, previous research also suggests that cross-cultural diferences can cause diferences in interpretations of ethical issues addressed in ethical codes Karnes et al. Ethical challenges In the context of legitimate expectations of accountancy irms in their role as State-mandated external auditors, and based on public and oicial rhetoric from the accountancy profession, reservations have been expressed in the business and professional press see, eg.

    In addition, the advocacy role played by accountancy irms for client management positions and their association with earnings management and with other questionable inancial activities is discussed in the context of the ethics of accountancy irms. As noted by Fischer and Rosenzweig , p. Conlicts of interest In a pluralistic society, not one but many expectations must be met.

    Ideally full satisfaction of the expectations of all parties would constitute the most ethical behaviour. At their most basic conceptualisation, ethical problems can arise when individuals interact with other people Finn et al. Conlict is viewed by Mills and Bettner , p. Other deinitions from the literature explain and illustrate the nature of ethical conlict as follows: Mayhew and Pike , p. Mayhew and Pike provide evidence of such criticisms going back to the mids.

    A possible conlict of interest has been inferred in empirical studies from the relatively high level of non-audit fees received by auditors from their clients eg. Frankel et al. Counter arguments are sometimes ofered that provision of NAS can reduce total audit costs and facilitate better quality audits due to better knowledge of the client business. Substantial research also investigates the implications of audit irms providing non-audit services to their audit clients.

    By providing these services, auditors leave themselves open to criticism of compromising their objectivity, independence and prioritisation of the public interest Canning and Gwilliam, A comprehensive analysis of conlicts of interests between auditing and consulting is provided in Boyd Many research studies have sought to produce evidence of a conlict of interest between audit and consulting work provided for the same client, but these have generally been inconclusive Crasswell et al.

    Some research has not supported the contention that high non-audit service fees suggest a conlict of interest for auditors eg.

    Ashbaugh et al. Sharma and Sidhu, Conlicts of interest from independence violations are discussed in greater detail in the next sub-section. Conlicts of interest are morally harmful in that they corrode trust MacDonald et al. Hendrickson , p. According to Ponemon and Gabhart , p. Antle p. Society invests in audits for economic reasons.

    Audits enhance the workings of markets, particularly capital markets Duska, ; Staubus, ; Brilof, Antle , p. If the beneits outweigh the costs, we are better of with these activities than without them. A moral framing of independence sees auditors as professionals, with obligations to the public.

    Sometimes these obligations require tough decisions to be taken which can be costly to the audit irm. Firms should not engage in activities that appear to impair their efectiveness as professionals, regardless of their incentives Antle, Costs and beneits can be argued to be irrelevant when discussing moral issues. Auditor independence and audit firm ethics are inextricably linked. Independence in fact is the unbiased mental attitude of the auditor. Independence in appearance is the perception by a reasonable observer that the auditor has no relationship to the audit client that suggests a conlict of interest.

    Since independence in fact is unobservable, research in the area of auditor independence has focused on identifying factors that inluence independence, both positively and negatively, and on assessing their impact upon perceived independence. Factors inluencing independence also fall into two categories: Fees to audit irms from NAS have been rising more rapidly over time than audit fees Beattie and Fearnley, Consequently, concerns are widely expressed that economic dependence leads to compromised auditor objectivity, backbone and integrity.

    Abdel-khalik argues that the threat to auditor independence comes from the institutional arrangements that effectively give management and the Board of Directors control over the appointment and terms of appointment of external auditors, rather than from the same professional irm providing both auditing and consulting services.

    Abdel-khalik , p. Audit irms make the following arguments in favour of the provision of NAS, as cited by Canning and Gwilliam Nonetheless, policy-makers and regulators remain sceptical of the beneits and are more convinced by the potentially dysfunctional efects of audit irms providing NAS.

    For example, audit irms often use the statutory audit as a loss leader to secure more lucrative NAS contracts. Audit irms should focus primarily on providing high-quality audit and assurance services and should perform no consulting for audit clients.

    Audit irm personnel should be selected, evaluated, compensated, and promoted primarily based on technical competence, not on their ability to generate new business.

    Audit irms should view public accounting as a noble profession focused on the public interest, not as a competitive business Hermanson and Lapides, , p. Independence is perceived to be compromised, even if it is not actually compromised, when the relationship between auditor and client management is too close.

    In the context of impaired independence of non-executive directors, an American shareholder activist is quoted in Gray , p. M4 as follows: Too often I was silent when management made proposals that I judged to be counter to the interests of shareholders. In these cases, collegiality trumped independence Volumes of commentary are on record criticising the relationship between Arthur Andersen and Enron, implying an absence of integrity in the audit see eg.

    Whilst rotation of auditors is sometimes suggested as a safeguard against the familiarity threat, there is no evidence that such a policy is widespread in market economies, although Zef a discusses the policy of changing auditors annually and biannually in Du Pont between and It is argued that the changing structure of the accounting profession in the s and s, whereby major accounting irms began to employ many more trainees than they historically needed to replace retirees and to accommodate growth, fuelled the diminution of auditor independence Boyd, , p.

    Boyd , p. Empirical evidence of link between NAS and impaired independence As previously noted, academic research has distinguished between independence in fact and independence in appearance. Empirical research, conducted to establish whether the provision of NAS actually compromises auditor independence, has failed to ofer persuasive evidence one way or the other see Reynolds et al.

    Although most empirical research to date has concluded that independence is not impaired, this research sufers from the limitations of the research method used. Because independence cannot be measured directly, several proxies have been used as a surrogate for independence.

    For example, Frankel et al. Using yet another measure of earnings quality, Raghunandan et al. Again, they found no association between the likelihood of restatement and the levels of non-audit fees. DeFond et al. First, the use of discretionary accruals as a proxy for earnings management is problematic and inaccurate, as demonstrated when Ashbaugh et al. Secondly, the use of earnings management as an indicator of impaired auditor judgement introduces noise into the results, because auditors have not been proven to have strong inluence on the quality of client earnings.

    In response to these problems, DeFond et al. However, research on the perception of independence in the light of the provision of NAS tells a diferent story. Firth examined whether clients, who had high, or potentially high, agency costs and a greater need for the appearance of independence, purchased relatively smaller amounts of NAS.

    Canning and Gwilliam investigated the efects of the provision of NAS on perceptions of auditor independence. Auditor independence was perceived as signiicantly diminished where personnel involved in the audit, rather than a separate department, provided NAS to clients.

    Reinstein and McMillan provided circumstantial evidence from the prior literature of situations where independence was perceived to be impaired: Audit Quality Audit Quality has been deined by Chaney et al. Audit quality is assumed to be the function of two specific auditor attributes: Quality is a complex social construct which is not easily observable by either regulators or the general public Sikka, A stated purpose of monitoring audit irms is to enable a regulator to satisfy itself that auditors have complied with regulations, as distinct from setting out to ensure that a good quality audit is done Fuerman, For example, the number of audit failures has increased, and litigation against audit irms, with resultant increases in professional indemnity insurance premiums, has also occurred Boyd, Auditors have also been criticised for issuing clean audit reports in situations where companies have gone into liquidation or receivership soon afterwards Brown, ; Bryan-Low, A substantial literature based on questionnaire evidence investigates the impact on audit quality of time pressure in audit irms where doubtful audit evidence is being passed over by audit teams under time pressure to complete assignments, such as the failure to test the required number of items in a sample, or falsifying working-papers Sikka, ; Willett and Page, A direct association between the behavioural consequences of time pressure and audit irm ethical standards is rarely, if ever addressed in the literature.

    However, the literature suggests a tacit knowledge by the irms that this behaviour exists among audit staf Pierce and Sweeney, ; Otley and Pierce, b; Willet and Page, Time budgets were used to control the costs incurred on audit assignments, these budgets were seen by audit staf as being very tight and sometimes unattainable.

    However, successfully meeting budget and avoiding over- runs was seen by auditors as being critically important for achieving good personal performance evaluation ratings and progressing within the irm. Consistently high levels of time pressures were subsequently reported in a wide range of studies in the US eg.

    While the predominant form of time pressure has continued to be that associated with time budgets, more recent research has distinguished between time budgets, leading to chronic time pressure persistent, relatively unchanging , and time deadlines, leading to more acute and potentially more damaging time pressure short-term, high intensity impact DeZoort and Lord, Consistent with the general literature on management control systems, this research has reported evidence of a positive correlation between the intensity of time pressure and reported levels of dysfunctional behaviour eg.

    One particular form of behaviour that has been found to be prevalent is the tendency of some auditors to under-state the number of hours worked on a particular client in order to avoid budget over-runs Anderson-Gough et al. However, there is consistent evidence that URT is contrary to irm policies, and it has been associated with negative personal feelings and the perpetuation of unrealistically tight budgets, leading to the possible incidence of quality threatening behaviour in later periods Pierce and Sweeney, ; Otley and Pierce, b.

    While the methods used in any particular study are necessarily limited, the high degree of consistency in the indings provides credible evidence of relatively high levels of dysfunctional behaviour and a positive association between the incidence of this behaviour and the intensity of time pressure. Most of the research has focused on audit seniors because this has been regarded as the most pressurised position in the irm Kelley and Seiler, , although the issue of dysfunctional behaviour at partner level has also been addressed in the literature Carcello et al.

    These issues regarding the incidence of potentially damaging behaviours in response to cost control procedures have been discussed in the context of a cost-quality conlict McNair, Whereas costs, represented mainly by professional hours, are highly visible and amenable to precise measurement, audit quality is more diicult to measure. In an investigation of auditor and client management decision-making processes in UK listed companies, Beattie et al. A contributory factor to the poor relationship was identiied as: Personnel, social, clan and self controls could be described as less obtrusive forms of control, whereas output, input and behavioural controls were seen as traditional forms of control.

    In situations where professional training took place in an organisation such as the accountancy profession, the level of professional autonomy desired might difer considerably from the level encouraged by the organisation. Abernethy and Stoelwinder pointed out that an organisation needed to supplement the social and self controls of the professional with training and socialisation strategies to ensure that there was congruence between the goals of the organisation and those of the professional.

    A poor audit does not cause failure Hamilton, However, with a poor audit, people can disguise the reality of what is going on. Arguments in the literature focus on how the contemporary approach to auditing has allowed problems to persist. It is argued that corners are cut, junior or cheap staf are used, and excessive reliance is placed on poorly understood, and sometimes incorrectly applied, statistical techniques.

    Lobbying More and more it became clear that audit irms did not want to do anything to rock the boat with clients, potentially jeopardising their chief source of income. Consulting contracts were turning accounting irms into extensions of management — even cheerleaders at times Levitt, , cited in Boyd, , p. Lobbying by vested interests or concerned parties is common throughout democratic societies. An extensive literature on lobbying in accounting contexts exists.

    Accountancy bodies and irms lobby on behalf of clients eg. Lobbying on accounting issues is the collective term for the action taken by interested parties to inluence the rule-making and accounting standard-setting bodies Sutton, A similar conclusion was drawn by Boyd with regard to Big Firm inluence on professional body strategies, activities and policies.

    Zeff details numerous instances internationally where proposed changes to accounting rules were undermined by lobbying from political, industrial, and professional quarters. However, unexpectedly, it was defeated when delegations from Korea, Italy, Germany and Japan voted against it. It appeared the delegations were put under pressure by companies operating in these countries, where LIFO was allowable under income tax rules, and the inancial reporting rules were linked to the tax rules.

    A similar situation occurred when the Accounting Standards Committee ASC reversed their position on accounting for deferred tax in the mids, succumbing to pressure from the UK Government, clearing banks and big industry. Many of the submissions made by clearing banks and industry were submitted by accounting irms on behalf of their clients.

    Furthermore, McKee et al. During the period , the American Bankers Association, aided by the chairman of the Federal Reserve Board and the chairman of the Federal Deposit Insurance Corporation, lobbied to prevent the FASB requiring that all marketable securities be shown at fair value and that changes year-on-year in those values be included in earnings.

    In the period , there was severe opposition to a FASB exposure draft which required companies using stock options as a means of compensation to estimate the fair value of the options and charge the expense against income. Eventually, congressional pressure became so intense that the SEC chairman feared that approval of the FASB proposal would jeopardise private sector control of accounting standard-setting.

    Further, Hill et al. Finally, Zef describes the period , when industry and the profession lobbied strongly, through congress, to prevent new regulations on accounting for business combinations and to introduce the mandatory amortisation of goodwill.

    Lobbyists were particularly opposed to the proposed mandatory amortisation of goodwill. Puro did not ind signiicant empirical evidence to support these claims. While he found that the big irms participated more in the process, this could not be inferred as dominance, since smaller irms might not have participated because they might have felt they had no interests at stake, or, they might have felt that their interests were already represented by participating irms.

    In addition, Puro found little evidence that the big irms acted as a bloc. He actually found as many instances where big irms disagreed as when they agreed. It was also found that the opinions of the big irms were not consistently out of step with other representatives of industry. It was inferred from submissions to the standard-setting process, however, that the level of disagreement among big irms meant that they were in fact acting on behalf of their clients and not in the public interest, and that the disagreement relected disagreement among various businesses and clients.

    Sikka and Willmott examined responses to the proposed 8th EU Directive. At the time, Coopers and Lybrand publicly urged all their clients to lobby the UK government on the proposal to curb the sale of non-audit services. Such questioning has occurred in the context of overstated company earnings and massaged inancial condition, falsiication of corporate records, lying, cover-ups, improperly applied accounting principles and false disclosures Reinstein and McMillan, ; Finn et al.

    Capital markets provide companies with both positive and negative incentives to manage earnings Clikeman et al. Despite the potential of well-developed accounting and disclosure practices to serve capital markets well, Brilof , p. GAAS could provide the frame of reference for meaningful inancial statement analysis …. Regrettably that kind of disciplined approach could not produce the irrationally exuberant numbers demanded by those who were expecting ecstasy from NASDAQ.

    In an empirical study which investigated the perceptions of relatively sophisticated investors, Hodge concluded that perceived earnings quality for all publicly traded irms had declined over time, as had perceived auditor independence and the perceived reliability of audited inancial information.

    Widespread concerns about earnings management contributed to these adverse perceptions. Healy and Wahlen suggest that earnings management occurs when managers use judgement in inancial reporting and in structuring inancial transactions to alter inancial reports, either to mislead some shareholders about the underlying economic performance of the company, or to inluence contractual outcomes that depend on reported accounting numbers.

    Earnings management has been deined in a number of diferent ways, including the following: Any action on the part of management which afects reported income and which provides no true economic advantage to the organization and may, in fact, in the long-term, be detrimental Merchant and Rockness, , p.

    Whilst that provided by Gaa , p. Referring to prior literature, Nelson et al. Managers can intervene by modifying how they interpret inancial accounting standards and accounting data, or by timing or structuring transactions Healy and Wahlen Because many such interventions are diicult to distinguish from appropriate applications of GAAP, the deinition of earnings management hinges fundamentally on managerial intent, which is diicult to assess using ex post accounting information Dechow and Skinner, Earnings management activities can mislead inancial statement users and sometimes are precursors of more serious activities such as fraudulent activities Loomis, Dechow and Skinner provide a useful analysis of the distinction between earnings management and fraud.

    See also Nieschwietz et al. Earnings management was identiied as the most important ethical issue facing the accounting profession long before the Andersen implosion, not only because of the immediate consequences for the afected parties, but also because of the erosion of trust between shareholders and companies Clikeman et al.

    Nelson et al. Other studies focus on analysing disciplinary outcomes eg. Experimental studies examine earnings management related decisions made in laboratory settings.

    See Dechow and Skinner for a good explanation and Dye for an examination of EM incentives from a shareholder perspective. In particular, research examines whether or not earnings management exists DeGeorge et al. However, few studies have examined the ethical perceptions of earnings management activity Elias, Dye developed a model to identify situations in which certain users of inancial statements beneited from earnings management.

    Focusing on two classes of user, shareholders and non-shareholders, his model indicated that shareholders had a demand for earnings management that boosted the share price in the short run, whereas non- shareholders did not.

    While managers engaged in earnings management to increase the stock price, they also engaged in earnings management for personal gain. He acknowledges that where the intent of earnings management is personal gain by managers, shareholders would not beneit and, therefore, would not have a demand for certain types of earnings management.

    A key driver of aggressive accounting, in a study of audit partners and inance directors of UK listed companies, was found to be inancial diiculty, and particularly the need to stay within debt covenants Beattie et al. Gillett and Uddin , p.

    Operating manipulations occur when operating decisions afect cash low and net income for a period, eg. Accounting manipulations arise when the lexibility in accounting standards is used to alter accounting numbers Elias, Public and regulator perceptions of inadequate audits have increased dramatically in the wake of the recent financial scandals.

    Many commentators have suggested that the commercial focus of prioritising client management satisfaction over professional reputation has led to compromised auditor integrity. Earnings management causes trust between shareholders and companies to erode Levitt, A counter argument is that current shareholders encourage earnings management in order to maximise the value of their shareholdings at the expense of future shareholders, thereby creating a managerial incentive to manage earnings.

    Schipper accepted that earnings management was inherent in the inancial reporting system and argued that this did not eliminate the usefulness of accounting earnings.

    Parfet also argues that earnings management is not necessarily a bad thing. Empirical evidence of earnings management Although empirical research conirmed for some time the existence of earnings management, evidence on the frequency and magnitude of earnings management throughout the s was sparse, as was evidence of how earnings were managed Healy and Wahlen, While anecdotal evidence and instinct led regulators to accuse managers, accountants and the wider business community of engaging in earnings management, the profession relied to some extent on the fact that academic evidence failed conclusively to address many of the issues surrounding earnings management or its consequences and ethicality Merchant and Rockness, Kaplan also refers to the paucity of research on the ethicalness of earnings management.

    Empirical research has ofered circumstantial evidence that earnings management occurs. Burgstahler and Dichev , Burgstahler and DeGeorge et al. Brown , Burgstahler and Eames and DeGeorge et al. Dechow et al. However, there is disagreement among academics relating to the efect of earnings management, such as whether earnings management afects resource allocation, ie.

    For example, Teoh, Welsh and Wong and Teoh, Wong and Rao ind that irms with income-increasing abnormal accruals in the year of a seasoned equity issue or initial public ofering sufer signiicant stock underperformance subsequent to the oferings. However, in studies of the banking industry, Wahlen , Beaver and Engel and Liu and Ryan report that stock returns are negatively related to normal changes in loan loss provisions and positively related to abnormal loan loss provisions.

    From these studies, Healy and Wahlen infer that investors and shareholders suspect that irms with abnormally low loan loss provisions are managing earnings, and they discount the performance accordingly. Even before Enron and the other notorious scandals since , regulators insisted that earnings management was a pervasive problem, and practitioners were confronted with it on a daily basis.

    Consequently, the profession appeared to use this disagreement to justify inaction. In an attempt to reconcile the views of the three, Dechow and Skinner ofered three reasons for the difering views.

    First, because academics generally wish to make broad statements about earnings management, they choose large samples, and so tend to use statistical deinitions of earnings management which may not be very powerful in identifying how it is efected.

    In contrast, practitioners observe earnings management almost daily. Second, the incentives tested by academics, such as loan covenants and bonus plans, are not of particular interest to practitioners and regulators and ex post are not very fruitful in identifying earnings management behaviour. Dechow and Skinner proposed that the inal reason for the difering views stemmed from difering views on investor rationality. McNichols contributed further insights to the research design issues in earnings management research.

    She suggested that the use of proxies was weak and that signiicant noise was introduced, which could vary over time and between industries, weakening the power of any research based on this approach. She also stated that studies that approached earnings management by examining the density of the distribution of earnings after they have been managed eg.

    DeGeorge, ; Burgstahler and Eames, ; Burgstahler and Dichev, were silent on the incentives to manage earnings, and while they were more powerful than accruals proxy studies, they did not address where earnings were managed, why, or how frequently.

    It appears that the scandals have borne out the pessimistic prediction of the Treadway Commission , cited in Merchant and Rockness, , that there was a danger over time that company inancial reporting practices would sink to their lowest, most manipulative level.

    Table 3. A newspaper report suggested that the ailiates to the international auditors were warned in about the possibility of problems. Hong Kong. Two Grant reported. A subsequent hornton employees were investigation by charged with fraud. Such laid out the plans, however, swaps resulted in congressional investigations losses, which ought revealed that Andersen was to have been recorded aware of this and took no as expenses and were action.

    Global Andersen he SEC investigated Andersen gave advice as Crossing how the energy giant to how to legitimise the recorded contract and transactions as fully as capacity swaps in its possible applying market books15, and found rates, etc whilst being that they were used to aware that the practice enhance revenue.

    Adelphia Deloitte Filed for bankruptcy It was argued that Deloitte protection and was were aware and failed to being investigated by lag many of the related- the SEC for related party transactions, failed party transactions and to consult with the audit self-dealing.

    Shortly committee on the complex before the collapse, cash systems, and had not it revealed inlated provided the board with cash low and revenue a management letter for 7 for and years. Consequently, they are not elaborated upon further in this section of the report. Ethical dimensions of earnings management he campaign to control creative accounting has put the spotlight on an issue that goes to the heart of business and legal ethics — the tendency to see minimalist compliance with advantageously interpreted regulation, literal compliance with the letter of the law, as good enough McBarnet and Whelan, , p.

    Earnings management is considered to be unethical, or at least unprofessional, by many eg. Loomis, ; Levitt, ; Merchant and Rockness, While severely critical of auditor support of questionable accounting practices, Brilof p. According to Staubus , p.

    The ethics of earnings management hinges on judgements of what is considered acceptable and what is not acceptable Merchant and Rockness, In their empirical study of inance executives and internal auditors, acceptability was judged to vary with the type operating vs accounting manipulations , size materiality , timing accounting period-end , and purpose eg.

    Previously, Merchant analysed some inancial statement fraud cases to identify and chart a scale of acceptability of earnings management practices acceptability continuum. At one extreme he identiied practices, such as fraud, that virtually everyone would denounce as unacceptable. Two studies focusing on the type of earnings management Bruns and Merchant, ; Fischer and Rosenzweig, found a range of judgements about the acceptability of operating methods, as opposed to accounting methods, of managing earnings.

    Bruns and Merchant surveyed general, inance, and audit managers and Fischer and Rosenzweig used undergraduate accounting and MBA students, and accounting practitioners. Accounting manipulations were rated as more ethically unacceptable than operating manipulations. Students were more lenient in their judgements than those in practice, and it was speculated that this was due to the increased awareness aforded to practitioners by their experience at work.

    Second, ethical perceptions were afected by four of the six tested factors: Direction of efect increase vs decrease earnings and consistency with GAAP did not afect ethical perceptions. Finally, general managers were most harsh in their judgements and internal auditors were most liberal.

    Merchant and Rockness concluded that there was less than unanimous agreement about where the line between right and wrong should be drawn. Similar results were reported in Clikeman et al.

    He found that earnings management was assessed less unethically by shareholders for one of the three scenarios where the earnings management was intended for company beneit. In addition, intent did not inluence ethicalness judgements among non-shareholders. Elias argues that there is a thin line separating earnings management and management fraud see also Grant et al.

    His results indicated that respondents believed that accounting manipulations of earnings were unethical, but that operating manipulations were not. Determinants of earnings management ethics, such as personal moral philosophies and social responsibility, were tested in this study. However, Elias concluded that while judgements on the ethicality of certain behaviour might be inluenced by these determinants, the impact of these variables on behaviour or intention could not be predicted.

    While expressing concern at the apparent willingness of respondents to permit manipulation of reported earnings, they concluded that personal value preferences did not inluence ethical decision-making in auditing. However, they acknowledged limitations on the ability of personal values to explain or predict ethical judgements and behaviour. It is this slippery slope that often carries minor ethical infractions into the territory of inancial fraud.

    Indeed, this is echoed by the Treadway Commission , which reported that most fraud begins with small ethical infractions. To date, limited research has been conducted in this area.

    This study examined the association between accounting ethics and performance .. inconsistency in literature has therefore brought about the. DOI /sl Taking Stock of Accounting Ethics Scholarship: A Review of the Journal Literature. Roberta Bampton * Christopher J. Cowton. that the study recommends that (accounting) ethics should not be a stand- alone module or subject but . CHAPTER TWO – Literature Review.

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    This study examined the association between accounting ethics and performance .. inconsistency in literature has therefore brought about the.

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