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Recognizing Ethical Issues: An Examination of Practicing Industry Accountants and Accounting Students

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Abstract

It has long been recognized that accountants practicing in business settings have a dual role: (1) as employees, they are bound to the organization, and (2) as professionals, they are bound by the profession’s code of ethical conduct (Westra, Journal of Business Ethics 5(2): 119–128, 1986). These two roles highlight the need to recognize and consider both the ethical and economic implications of their decisions. Practicing industry accountants are commonly involved in a broad range of their firm’s business practices and decision making, and are increasingly exposed to the commercial aspects of their companies. Also, during their education, they were trained on their professional responsibilities. However, in general, this education was not recent and may not have been reinforced. By contrast, accounting students have been recently and repeatedly exposed to and have knowledge about their professional responsibilities as an accountant, but limited, if any, exposure to the commercial aspects of business. Consequently, our first hypothesis predicts that the ethical sensitivity of practicing industry accountants will be lower than that of accounting students. We find limited support for this hypothesis. Second, we also examine company reward structure and predict that ethical sensitivity will be lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure (e.g., including rewards for both financial and non-financial goals). Third, we predict that the difference in ethical sensitivity levels between those in a company with a narrow reward structure as compared to those in a company with a broad financial reward structure will be higher for practicing industry accountants compared to accounting students. Results from our study generally support these last two predictions. Ethical sensitivity is lower for those in a company with a reward structure narrowly focused only on financial goals as compared to those in a company with a broad reward structure, suggesting that companies may be able to increase ethical awareness in their organizations by including non-financial goals in their reward structures.

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Notes

  1. Our experimental instrument and study were approved by the research ethics board at the institution of the researcher who facilitated the data collection and has been performed in accordance with the ethical standards laid down in the 1964 Declaration of Helsinki. All experimental participants provided their informed consent and all responses are reported in the aggregate.

  2. The presentation order for the four alternatives is randomized by method of earnings management. The use of a Latin Square design for randomization controls so that each issue is in each position at least once. This design produced four distinct orders, which were randomly distributed to participants.

  3. The setting and dialog form are based on Hawkins (2010). The project costs option included in the case was adapted from Cohen et al. (2000) and the pension adjustment option is informed by Moehrle and Reynolds (2005). Two of the earnings management options presented in the case were adapted from the vignettes used in prior earnings management studies (Merchant and Rockness 1994).

  4. The case dialog stressing the importance of meeting the financial targets of the firm (EPS) is kept constant over all conditions. This simulates the fact that although companies may broaden corporate goals by adding non-financial goals, pressure to meet financial goals and financial targets still remains.

  5. All three pilot test participants have at least three years of public accounting experience and one has an additional five years of experience as a corporate accountant.

  6. Jordan (2007) provides a detailed review of the methods of measurement for research in the field of ethical sensitivity. Prior studies of ethical sensitivity have generally presented participants with a written case and then asked them to identify the issues within the case. The identified issues are then coded as ethical or non-ethical in nature to present a score of ethical sensitivity (Shaub 1989).

  7. Time measures were analyzed, to ensure that administration differences between participant types did not affect participants’ effort when completing the task. There was no significant difference in the time to complete the experiment between professional industry accountant and student participants. In addition, there was no significant difference in experimental dropout rates between participant types.

  8. Evidence suggests that reporting on corporate social responsibility generates several benefits. For example, Dhaliwal et al. (2011) find that costs of equity capital tends to go down after initiating corporate social responsibility reporting. More recently, Christensen (2016) reports that firms reporting on corporate social responsibility are less likely to engage in high-profile misconduct.

  9. “Researchers who seek to study ethical sensitivity and also use questions that include words alluding to ethics may enhance ethical sensitivity due to their questioning. It is desirable for professionals to act ethically, and participants in this setting will very likely claim that they weigh moral criteria when their choices have explicit moral overtones” (Schlachter 1990, p. 848).

  10. Both coders are chartered accountants and have a minimum of five years of accounting experience.

  11. Ethical considerations may be tied to financial concerns. For coding purposes, issues were recognized as ethical issues only when respondents explicitly recognized the effect of the issues on stakeholders other than themselves or the company.

  12. The relative weightings used in the paper are consistent with those used in Swenson-Lepper (2005), in that the weighting decreases as the questions prompt ethics to a greater degree. The values used for the weighting have been moderately adjusted to allow for use of the Poisson distribution which requires whole number responses.

  13. The number of issues identified in Level 1 was used to test the robustness of the results to alternative calculations of ethical sensitivity. Supplemental analysis, not tabulated, corroborates the main reported results.

  14. By design, years of accounting experience is associated with participant type. As shown in Table 2, median years of accounting experience among accounting students are 0.00, and 15.0 and 13.50 for practicing industry accountants, across broad and narrow conditions of reward structure, respectively.

  15. All three participants were accounting students. Two of the three participants were in the narrow company reward structure group and one participant was in the broad company reward structure group. The course identified was a specific accounting course with a significant segment on information ethics and the ethicality of earnings management.

  16. Both participants were practicing industry accountants. One participant was in the narrow company reward structure group and one participant was in the broad company reward structure group.

  17. Information regarding the geographic location of the accounting practitioners was not collected, but participants were recruited from across Canada. Due to the anonymity of respondents, the geographical distribution of respondents cannot be calculated; however, cases were distributed across a minimum of three Canadian provinces and four Canadian cities.

  18. One practicing accountant did not have a designation, but had four years of experience as a financial accountant and one practicing accountant did not specify whether s/he held an accounting designation, but had seven years of accounting experience.

  19. The Poisson distribution requires the mean of the distribution be equal to the variance. Over-dispersion tests of our model indicated a significant over-dispersion (P value = 0.001). To correct for the over-dispersion, we ran Quasi-Poisson models, which relax the assumptions required for the Poisson models. All presented and tabled results are based on the Quasi-Poisson models.

  20. All independent variables have been mean adjusted for Poisson analysis.

  21. Simple effects tests were run to corroborate this pattern of results and support H3. When separate Poisson Models (Quasi-Poisson) are run by participant type (untabulated), corporate reward structure has a significant effect on the ethical sensitivity of practicing industry accountants (SE = 0.096, P value <0.036), but no significant effect on the ethical sensitivity of accounting students (SE = 0.104, P value <0.214).

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Acknowledgments

We appreciate helpful comments and assistance from James Gaa, Kris Hoang, Karim Jamal, Ric Johnson, Keri Kettle, Theresa Libby, Michael Maier, Erin Marshall, Brad Pomeroy, Alan Webb, and Jennifer Welchman, participants at the American Accounting Association Ethics Symposium (2013); the Canadian Academic Accounting Association Annual Conference (2013); the University of Waterloo Centre for Accounting Ethics Symposium (2015); and to workshop participants at Queen’s University, the University of Alberta, the University of Calgary, the University of Lethbridge, the University of Saskatchewan, the University of Waterloo, and Wilfrid Laurier University. We also thank two anonymous reviewers and Sally Gunz and Linda Thorne.

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  1. Faculty of Arts, School of Accounting and Finance, University of Waterloo, Waterloo, ON, Canada

    Krista Fiolleau

  2. School of Accountancy, W. P. Carey School of Business, Arizona State University, Tempe, AZ, USA

    Steven E. Kaplan

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Correspondence to Krista Fiolleau.

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Fiolleau, K., Kaplan, S.E. Recognizing Ethical Issues: An Examination of Practicing Industry Accountants and Accounting Students. J Bus Ethics 142, 259–276 (2017). https://doi.org/10.1007/s10551-016-3154-2

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