We examine whether a taxpayer’s decision to choose a taxpayer-favorable characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain or as ordinary income, and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as (...) a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research. (shrink)

In recent years, and in close connection with a number of well-known financial malpractice cases, public debate on business ethics has intensified worldwide, and particularly in ethics-unfriendly environments, such as Spain, with many recent fraud and corruption scandals. In the context of growing consensus on the need of balancing social prosperity and business profits, concern is increasing for introducing business ethics in higher education curricula. The purpose is to improve ethical behaviour of future business people, and of accounting professionals in (...) particular. In this study, from a sample of 551 business students at a Spanish university, the importance of accounting ethics is investigated. The aim of this paper is twofold. First, we attempt to examine students’ overall perceptions of business ethics in unfriendly environments and, specifically, their views on the importance and goals of accounting ethics education. Second, we intend to investigate whether potential differences in such perceptions depend on previous business ethics courses taken, gender, and age of students. Our results show that those students who have previously taken an ethics course are especially prone to considering that accounting education should include ethical considerations, and show greater interest in further introducing this subject in their curricula. These facts should encourage universities offering business degrees in ethics-unfriendly environments to extend the implementation of ethics courses in their curricula. Besides, significant differences in students’ perceptions on the importance of accounting ethics are found depending on their gender and age. In line with previous research findings, female and older students show more ethical inclinations than, respectively, male and younger students. Thus, ethics-unfriendly environments can be treated as contexts where general trends on students’ ethical attitudes are also clearly visible. This fact, together with the evidenced impact of ethics courses on students’ ethical inclinations, places ethics-unfriendly environments as crucial research settings for further inquiring into the nuances that help explain students’ attitudes towards accounting ethics and the role of ethics courses in business degree curricula. (shrink)

The purpose of this study was to determine whether accounting students’ perception of moral intensity could be enhanced through a limited ethics intervention in an Advanced Accounting course. Ethical decisions are heavily influenced by the intensity of the moral problem: the more egregious the act, the more the people view it as unethical. This controlled experiment measures the change in perceptions of moral intensity with the pre- and post-test instruments using five accounting specific vignettes containing moral dilemmas which are progressively (...) more intense. While other studies have shown that perceived moral intensity directly influences a persons’ moral decision-making process, as far as we are aware, this is the first study that assesses and tests whether the coverage of specific ethics content integrated into an accounting class can positively influence the students’ perception of moral intensity, moral sensitivity/awareness, moral judgment, and moral intentions. Positively influencing students’ moral sensitivity/awareness, moral judgment, and moral intentions is a critical first step to ensuring that our courses and curricula provide the learning environment in which students can develop knowledge and competencies required to become the ethical leaders of tomorrow. (shrink)

Gender differences in ethical evaluations may vary across types of behaviors. This controlled experiment explores gender differences in ethical evaluations, moral judgment, moral intentions, and moral intensity evaluations by surveying a group of professional accountants to elicit their views on a common earnings management technique. We find that there are no significant differences between male and female professional accountants when they make an ethical evaluation involving earnings management by shipping product early to meet a quarterly bonus. Both male and female (...) professional accountants made a similar moral judgment that this action should not be completed and indicated similar moral intentions to report this type of behavior. Further, we find that male and female professional accountants made similar moral intensity evaluations when product is shipped early to meet a quarterly bonus. (shrink)

Fraud literature suggests that the presence or absence of fraudulent intentions can be assessed by a close scrutiny of human behaviour. This can help identify prospective fraud perpetrators. Given this consideration, the present study qualitatively explores the observations and views of people who have personally investigated or closely observed a fraud/fraudster. Twenty-six interviews help condense a checklist of behavioural red flags of fraud. The themes of strong ambition, social aloofness, extended working hours, dissatisfaction with current job, justifying unethical behaviour, personal (...) problems and living standard disproportionate to current means are central to the articulations of the experiences of the respondents. Findings of the study have been integrated with the theory of the fraud triangle. This research displays the complementarity between a primary data based ex-post analysis of the behaviour of fraud perpetrators and existing literature on the subject. The results are likely to help improve professional standards related to frauds, both from an organizational and regulatory perspective. (shrink)

Investigations into ethical judgments generally seem fuzzy as to the relevant research domain. We first attempted to clarify the construct and determine domain parameters. This attempt required addressing difficulties associated with pinpointing relevant literature, most notably the varied nomenclature used to refer to ethical judgments (individual evaluations of actions’ ethicality). Given this variation in construct nomenclature and the difficulties it presented in identifying pertinent focal studies, we elected to focus on research that cited papers featuring prominent and often-used measures of (...) ethical judgments (primarily, but not exclusively, the Multidimensional Ethics Scale). Our review of these studies indicated a preponderance of inferences and conclusions unwarranted by empirical evidence (likely attributable at least partly to inconsistent nomenclature). Moreover, ethical judgments related consistently to few respondent characteristics or any other variables, emergent relationships may not always be especially meaningful, and much research seems inclined to repetition of already verified findings. Although we concluded that knowledge about ethical judgments seems not to have advanced appreciably after decades of investigation, we suggested a possible path forward that focuses on the content of what is actually being judged as reflected in the myriad of vignettes used in the literature to elicit judgments. (shrink)

Knowledge about ethical judgments has not advanced appreciably after decades of research. Such research, however, has rarely addressed the possible importance of the content of such judgments; that is, the material appearing in the brief vignettes or scenarios on which survey respondents base their evaluations. Indeed, this content has seemed an afterthought in most investigations. This paper closely examined the vast array of vignettes that have appeared in relevant research in an effort to reduce this proliferation to a more concise (...) set of overarching vignette themes. Six generic themes emerged from this process, labeled here as Dilemma, Classic, Conspiracy, Sophie’s Choice, Runaway Trolley, and Whistle Blowing. Each of these themes is characterized by a unique combination of four key factors that include the extent of protagonist personal benefit from relevant vignette activities and victim salience in vignette descriptions. Theme identification enabled inherent ambiguities in vignettes that threaten construct validity to come into sharp focus, provided clues regarding appropriate vignette construction, and may help to make sense of patterns of empirical findings that heretofore have seemed difficult to explain. (shrink)

We examine the impact of an ethics education program on reporting behavior using two groups of students: fourth year Masters of Accounting students who just completed a newly instituted ethics education program, and fifth year students in the same program who did not receive the ethics program. In an experiment providing both the opportunity and motivation to misreport for more money, we design two social condition treatments – anonymity and public disclosure – to examine whether or to what extent ethical (...) values are internalized by students. We find that when participants are anonymous, misreporting rates are nearly the same regardless of ethics program participation. However, when their reporting behavior is made public to the cohort, participants who completed the ethics program misreported at significantly lower rates than those who did not receive the ethics program. The results suggest that ethics education does not necessarily result in internalized ethical values, but it can impact ethical behavior. (shrink)

This research is motivated by the criticism levelled at the academic community for its failure to incorporate sufficient ethics education into the accounting curriculum :53–71, 2004; Madison and Schmidt 2006). The inclusion of ethics decision-making frameworks by professional bodies in their codes of conduct or as a standalone tool and the encouragement of their use as a part of ethics education to help students to identify and think through ethical issues in a business context has been subject to very limited (...) research to date. The aim of this study is to provide evidence of the impact of providing a framework on its own and providing a framework as part of a comprehensive integrated ethics education component of a first-year unit of study, on accounting students’ ethical sensitivity and judgment. Results indicate that providing students with a framework only does not increase students’ ethical sensitivity but does support their ethical judgment. In contrast, the integrated ethics component does increase student’s ethical sensitivity, however, an unexpected finding of this study is that increases in students’ ethical judgement are greater if they have not been previously exposed to the framework. Taken together, our findings suggest that it is the framework that has a significant impact on students’ ethical judgment, while an integrated ethics education can expose students to a range of ethical issues and thereby improve their ethical sensitivity, a critical component which initiates the ethical decision-making process. (shrink)

The say-on-pay regulation in the Dodd-Frank Act requires publicly-traded U.S. firms to hold a nonbinding, advisory shareholder vote on executive compensation. Advocates claim that SOP voting gives shareholders a mechanism to hold managers and boards more accountable. Critics contend that SOP votes may simplistically reflect shareholders’ reactions to the overall value of CEO compensation or the firm’s net income. However, based on prior research, we contend that market participants’ SOP votes are likely to consider current income attributes. For example, the (...) market punishes firms that do not meet or beat benchmarks such as analyst earnings expectations, and that shareholders scrutinize the quality of the income sources of firms that consistently meet/beat analyst expectations. We thus expect that more shareholders will provide ‘agree’ SOP votes for a firm that consistently meets/beats analyst forecasts and does so when net income does not include nonrecurring gains. Further, we consider whether perceptions about the fairness of CEO compensation play a mediating role in the relationship between the interaction of these two current income attributes and SOP votes. Results from an experiment using evening MBA students as participants indicates that the two current income attributes significantly interact with respect to the percentage of agree SOP votes, and that compensation fairness perceptions fully mediate this relationship. Further, the mediating effect of compensation fairness perceptions is robust to including CEO-level and other determinants found in prior research. We conclude with a discussion of our findings and their implications for public policy and research. (shrink)

The quality of corporate disclosures has drawn increasing levels of criticism from Congress and the SEC. A subject of particularly intense scrutiny and action is the Management’s Discussion and Analysis (MD&A). This narrative, intended to provide an inside perspective on the reported results of the firm, is particularly important when attempting to evaluate the investment prospects of the marginal or poorly performing firm. However, managers may restrict the information content of the disclosure, raising potential concerns about ethical behavior. In this (...) study, we employ a proprietary instrument to measure the quality of MD&A disclosures for a sample of firms entering financial distress. We evaluate the disclosure behavior of these firms in an effort to determine whether changes in the disclosure appear to be motivated primarily by economic or ethical concerns. We find, on average, that firms increase disclosure quality in the year of initial distress. However, sustained increases in disclosure quality are limited to firms that subsequently recover from the distress. The results suggest that observed changes in disclosure are driven primarily by economic considerations, rather than ethical ones, especially in good economic times. (shrink)

Using Hofstede's culture theory (1980, 2001 Culture's Consequences: Comparing Values, Behaviours, Institutions, and Organizations Across Nation. Sage, NewYork), the current study incorporates the moral development (e.g. Thorne, 2000; Thorne and Magnan, 2000; Thorne et al., 2003) and multidimensional ethics scale (e.g. Cohen et al., 1993; Cohen et al., 1996b; Cohen et al., 2001; Flory et al., 1992) approaches to compare the ethical reasoning and decisions of Canadian and Mainland Chinese final year undergraduate accounting students. The results indicate that Canadian accounting (...) students' formulation of an intention to act on a particular ethical dilemma (deliberative reasoning) as measured by the moral development approach (Thorne, 2000) was higher than Mainland Chinese accounting students. The current study proposes that the five factors identified by the multidimensional ethics scale (MES), as being relevant to ethical decision making can be placed into the three levels of ethical reasoning identified by Kohlberg's (1958, The Development of Modes of Moral Thinking and Choice in the Years Ten to Sixteen. University of Chicago, Doctoral dissertation) theory of cognitive moral development. Canadian accounting students used post-conventional MES factors (moral equity, contractualism, and utilitarianism) more frequently and made more ethical audit decisions than Chinese accounting students. (shrink)

Based on evidence from press articles covering 39 corporate fraud cases that went public during the period 1992-2005, the objective of this article is to examine the role of managers' behavior in the commitment of the fraud. This study integrates the fraud triangle (FT) and the theory of planned behavior (TPB) to gain a better understanding of fraud cases. The results of the analysis suggest that personality traits appear to be a major fraud-risk factor. The analysis was further validated through (...) a quantitative analysis of keywords which confirmed that keywords associated with the attitudes/rationalizations component of the integrated theory were predominately found in fraud firms as opposed to a sample of control firms. The results of the study suggest that auditors should evaluate the ethics of management through the components of the TPB: the assessment of attitude, subjective norms, perceived behavioral control and moral obligation. Therefore, it is potentially important that the professional standards that are related to fraud detection strengthen the emphasis on managers' behavior that may be associated with unethical behavior. (shrink)

We examine whether a taxpayer’s decision to choose a taxpayer-favorable (vs. a taxpayer-unfavorable) characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain (taxed at a lower tax rate and hence taxpayer favorable) or as ordinary income (taxed at a higher tax rate and (...) hence taxpayer unfavorable), and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research. (shrink)

Ethics has been identified as an important factor that potentially affects auditors’ professional skepticism. For example, prior research finds that auditors who are more concerned with professional ethics exhibit greater professional skepticism. Further, the literature suggests that professional skepticism may lead the auditor to more vigilantly resist the client’s position in financial reporting disputes. These reporting disputes are generally resolved through negotiations between the auditor and client to arrive at the final reported amounts. To date, the role that professional skepticism (...) potentially plays in the negotiation process has been relatively unexplored. The literature prior to the enactment of Sarbanes–Oxley (SOX) suggests that auditors are more likely to approve a client position when the matter in dispute is relatively ambiguous and when changing the client’s position will result in the client failing to meet analysts’ expectations. However, changes resulting from SOX have led auditors to be more vigilant and therefore results found in the pre-SOX environment may not hold in the current environment where auditors are held more accountable for their actions. Results from an experiment with experienced audit managers and partners suggest that in the post-SOX climate, auditors’ negotiations do not appear to be substantively influenced by management being able to meet or beat forecasts. Moreover, we find that when auditors exhibit heightened professional skepticism, they are more ethical by being conservative and they stand more resolute than when auditors do not exhibit heightened professional skepticism. Finally, although we do not find a main effect for the influence of earnings forecast, we do find a significant interaction between earnings forecast and heightened professional skepticism. Implications for practice and research are then presented. (shrink)

This research is an extension of Walker Information’s (Business Ethics: Ethical Decision Making and Cases, pp. 235–255, 1999) study on employees’ job attitudes that was conducted exclusively in the United States. Walker Information found that the reputation of the organization, fairness at work, care, and concern for employees, trust in employees, and resources available at work were important factors in an employee’s decision to remain with his or her company. Our sample includes 713 students from seven countries: Canada, Colombia, Ecuador, (...) Hong Kong, Ireland, South Africa, and the United States. When analyzing the entire sample, our data indicate that both social desirability response bias and gender were significant; however, this was not the case when the data are analyzed by country. On an individual country basis, our data suggest that the generally accepted premise that women are more ethically conscious than men was only true for the samples from the United States and Canada. The data also indicate that, while social desirability response bias was significant for the four factors suggesting ethical components for the sample from the United States, this finding was not universal. (shrink)

In this research, we review the current level of ethics education prior to college and the emphasis of the Association to Advance Collegiate Schools of Business (AACSB) on business ethics education in college using an ‘across the curriculum’ approach. We suggest that business schools and accounting practitioners can forge a more meaningful partnership than what currently exists through the traditional business advisory council prevalent at most schools of business. Ethical conduct is inherent in the practice of public accounting and a (...) hallmark of the accounting profession. Accounting practitioners can play a significant and positive role in helping business schools to reexamine their obligations to society and their students by actively engaging in the exchange of views by academics on the necessity for ethics education as well as those of professional accounting bodies.1. (shrink)

Largely due to the difficulty of observing behavior, empirical business ethics research relies heavily on the scenario methodology. While not disputing the usefulness of the technique, this paper highlights the importance of a careful assessment of the fit between the context of the situation described in the scenario and the knowledge and experience of the respondents. Based on a study of online auctions, we provide evidence that even respondents who have direct knowledge of the situation portrayed in the scenario may (...) develop significantly different assessments of the level of unethical behavior. Further, those assessments may be conditioned in different ways by the same moderating variables. We conclude that care should be exercised when recruiting respondents to choose only those who can be expected to understand the scenario in its true context and that separate analyses should be conducted for groups of respondents who have different perspectives within that context. (shrink)

Largely due to the difficulty of observing behavior, empirical business ethics research relies heavily on the scenario methodology. While not disputing the usefulness of the technique, this paper highlights the importance of a careful assessment of the fit between the context of the situation described in the scenario and the knowledge and experience of the respondents. Based on a study of online auctions, we provide evidence that even respondents who have direct knowledge of the situation portrayed in the scenario may (...) develop significantly different assessments of the level of unethical behavior. Further, those assessments may be conditioned in different ways by the same moderating variables. We conclude that care should be exercised when recruiting respondents to choose only those who can be expected to understand the scenario in its true context and that separate analyses should be conducted for groups of respondents who have different perspectives within that context. (shrink)