This paper presents a comparative analysis of three American and three European corporate failures. The first part of the analysis is based on a theoretical framework including six areas of ethical climate; tone at the top; bubble economy and market pressure; fraudulent financial reporting; accountability, control, auditing, and governance; and management compensation. The second and third parts consider the analysis of these cases from fraud perspective and in terms of firm-specific characteristics and environmental context. The research analyses shed light on (...) the fact that, despite major differences between Europe and U.S. in terms of political institutions, laws and regulations as well as managerial practices, there are significant similarities between six groups. The analysis also demonstrates that, the ethical dilemma has been coupled with ineffective boards, inefficient corporate governance and control mechanisms, distorted incentive schemes, accounting irregularities, failure of auditors, dominant CEOs, dysfunctional management behavior and the lack of a sound ethical tone at the top. Significant similarities were also observed in the analysis from the fraud triangle perspective. However, there are several major differences between the six corporate failure cases particularly with regard to ownership structure, coverage in media, and legal, regulatory and governance frameworks. This research study may have several academic and practical contributions, particularly because of multidisciplinary, international features, and comparative analyses used in the paper. (shrink)

Recent financial fraud legislation such as the Dodd–Frank Act and the Sarbanes–Oxley Act (U.S. House of Representatives, Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, [H.R. 4173], 2010 ; U.S. House of Representatives, The Sarbanes–Oxley Act of 2002, Public Law 107-204 [H.R. 3763], 2002 ) relies heavily on whistleblowers for enforcement, and offers protection and incentives for whistleblowers. However, little is known about many aspects of the whistleblowing decision, especially the effects of contextual and wrongdoing attributes on organizational (...) members’ willingness to report fraud. We extend the ethics literature by experimentally investigating how the nature of the wrongdoing and the awareness of those surrounding the whistleblower can influence whistleblowing. As predicted, we find that employees are less likely to report: (1) financial statement fraud than theft; (2) immaterial than material financial statement fraud; (3) when the wrongdoer is aware that the potential whistleblower has knowledge of the fraud; and (4) when others in addition to the wrongdoer are not aware of the fraud. Our findings extend whistleblowing research in several ways. For instance, prior research provides little evidence concerning the effects of fraud type, wrongdoer awareness, and others’ awareness on whistleblowing intentions. We also provide evidence that whistleblowing settings represent an exception to the well-accepted theory of diffusion of responsibility. Our participants are professionals who represent the likely pool of potential whistleblowers in organizations. (shrink)

The need to maintain the public trust in the integrity of the accounting profession has led to increased interest in research that examines the moral reasoning abilities (MRA) of Certified Public Accountants (CPAs). This study examines the MRA of CPAs practicing in small firms or as sole practitioners and the factors that affect MRA throughout their working careers.The results indicate that small-firm accounting practitioners exhibit lower MRA than expected for professionals and that age, gender and socio-political beliefs affect the moral (...) reasoning abilities of small-firm practitioners. We also find that completion of an ethics course in college has a positive impact on MRA. Also, the survey respondents indicate overwhelming support for including ethics courses within the business curriculum. Finally, the fact that those accountants with the lowest MRA are the least supportive of ethical training may indicate the need for mandatory, rather than optional, training in ethics both in university and Continuing Professional Education courses. (shrink)

In this paper, we investigate a large-scale financial statement fraud to better understand the process by which individuals are recruited to participate in financial statement fraud schemes. The case reveals that perpetrators often use power to recruit others to participate in fraudulent acts. To illustrate how power is used, we propose a model, based upon the classical French and Raven taxonomy of power, that explains how one individual influences another individual to participate in financial statement fraud. We also provide propositions (...) for future research. (shrink)

This article examines perceptions of tax partners and non-partner tax practitioners regarding their CPA firms’ ethical environment, as well as experiences with ethical dilemmas. Prior research emphasizes the importance of executive leadership in creating an ethical climate (e.g., Weaver et al., Acad Manage Rev 42(1):41–57, 1999; Trevino et al., Hum Relat 56(1):5–37, 2003; Schminke et al., Organ Dyn 36(2):171–186, 2007). Thus, it is important to consider whether firm partners and other employees have congruent perceptions and experiences. Based on the responses (...) of 144 tax practitioners employed at CPA firms, the results show that tax partners rate the ethical environment of their firms as stronger than non-partner tax practitioners, particularly among those who describe a self-identified ethical dilemma. Tax partners also report having encountered more of the common examples of researcher-provided ethical dilemmas than non-partner tax practitioners, although non-partners perceive that certain ethical dilemmas occur at a higher rate than partners do. Overall, this study provides evidence of a disconnect between tax partners and non-partner tax practitioners with respect to perceptions of organizational ethics. Suggestions for potential remedies are offered. (shrink)

A public accounting firm’s ethical environment has an important role in encouraging ethical behavior, but prior research has shown that firm leaders perceive the ethical environment of their firms to be stronger than do non-leaders : 637–654, 2010). This study draws on several research streams in management to investigate the reasons behind this discrepancy. Our online questionnaire was completed by 139 accounting professionals. We find that when non-leader accounting professionals believe that they have a meaningful role in shaping and maintaining (...) the ethical environment and/or have strong organizational fit with the accounting firm, they are more likely to perceive the ethical environment as strong and to perceive it similarly to firm leaders. That is, differences in leaders’ and non-leaders’ perceptions of the ethical environment are mediated by non-leaders’ perceptions of their role in participating in shaping and maintaining the ethical environment of their firms. Further, we find that among firm leaders, a stronger public interest orientation and a higher frequency of receiving mentoring are both associated with stronger perceptions of the ethical environment. Overall, our study is one of the first to directly test potential explanations for why firm leaders and non-leaders can have disparate views of a firm’s ethical environment. In addition, these findings provide practical feedback to practitioners on actions they can take to improve perceptions of their firms’ ethical environment. (shrink)

The recent accounting scandals have raised concerns regarding the closeness of auditor–client relationships. Critics argue that as the relationship lengthens a bond develops and auditors’ professional skepticism may be replaced with trust. However, Statement on Auditing Standards No. 99 states that auditors “should conduct the engagement with a mindset that recognizes the possibility that a material misstatement due to fraud could be present, regardless of any past experience with the entity and regardless of the auditor’s belief about management’s honesty and (...) integrity” (AICPA 2002, Statement on Auditing Standards No. 99, paragraph 13, p. 10). The purpose of this study is to investigate whether auditors develop trust in a client’s management and whether this trust affects auditors’ decisions. Specifically, this study examines whether auditors’ satisfaction with a client’s management during a prior audit engagement affects auditors’ self-reported trust in that client’s management and whether that trust affects their fraud risk assessment. The decision to trust a client’s management should be an ethical decision because excessive trust may impair auditors’ skepticism, which auditors are required to maintain by their professional responsibilities. We therefore also investigate whether auditors’ trust is affected by their moral reasoning. An experimental case was completed by 89 professional auditors, all with experience assessing the risk of fraud. The results suggest auditors’ satisfaction with the client affects their trust in the client (higher satisfaction associated with higher trust and lower satisfaction associated with lower trust). Further, after an overall unsatisfying experience, auditors’ trust affects their fraud risk assessments. However, after an overall satisfying experience, their trust does not affect their fraud risk assessments. The results indicate auditors are able to maintain their professional skepticism after satisfying past experiences with the client regardless of their beliefs about the honesty and trustworthiness of the client’s management. Lastly, auditors’ moral reasoning was not related to their trust in the client’s management. (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)

While there has been extensive research on deception, extant literature has not examined how deception is processed solely from the customer's perspective. Extensive qualitative interviews were conducted and analyzed to inform the proposed framework. Cognitive dissonance theory and attribution theory are used to frame the process consumers go through when deception is perceived. When consumers perceive deceit, they will consider attribution before determining intentionality. Internal attributions relieve the company of wrongdoing to some extent, whereas external attributions lead consumers to examine (...) several elements of deception including intent. Unintentional deceit will trigger assessments of magnitude, stability, and switching costs; while less is considered when deceit is intentional. The findings of this research are important for advancing theory in relation to deceit and for helping practitioners understand the importance of changing consumer cognitions before consumers decide to change their behavior by discontinuing the relationship. (shrink)

In order to provide an effective whistle-blowing system, it is expected that companies would provide employees with a high level of disclosure regarding the whistle-blowing process. This study investigates variation in the extent of whistle-blowing disclosures. As a measure of whistle-blowing implementation, this study further examines the provision of a hotline channel. The results suggest that the extent of whistle-blowing disclosures is positively associated with the permissibility of anonymous reporting and organisational support for whistle-blowing, the number of external directors on (...) the audit committee, and the existence of concentrated shareholdings. The mere existence of whistle-blowing disclosures could simply be symbolic. The findings also indicate a greater likelihood of the provision of hotlines when companies are larger in size, have a higher level of current inventory, are cross-listed in the US, and permit anonymous reporting. (shrink)

This paper compares the moral reasoning of 363 auditors from Canada and the United States. We investigate whether national institutional context is associated with differences in auditors'' moral reasoning by examining three components of auditors'' moral decision process: (1) moral development, which describes cognitive moral capability, (2) prescriptive reasoning of how a realistic accounting dilemma ought to be resolved and, (3) deliberative reasoning of how a realistic accounting dilemma will be resolved. Not surprisingly, it appears that institutional factors are more (...) likely to be associated with auditors'' deliberative reasoning than their prescriptive reasoning in both countries. Additionally, our findings suggest that the national institutional context found in the United States, which has a tougher regulatory and more litigious environment, appears to better encourage auditors to deliberate according to what they perceive is "the ideal" judgment as compared to the Canadian context. We then discuss the implications of these findings for regulators and for ethics research. (shrink)