Journal of Business Ethics

, Volume 109, Issue 3, pp 351–366

The Impact of Ethical Leadership, the Internal Audit Function, and Moral Intensity on a Financial Reporting Decision

  • Barbara Arel
  • Cathy A. Beaudoin
  • Anna M. Cianci

DOI: 10.1007/s10551-011-1133-1

Cite this article as:
Arel, B., Beaudoin, C.A. & Cianci, A.M. J Bus Ethics (2012) 109: 351. doi:10.1007/s10551-011-1133-1


Two elements of corporate governance—the strength of ethical executive leadership and the internal audit function (IAF hereafter)—provide guidance to accounting managers making decisions involving uncertainty. We examine the joint effect of these two factors, manipulated at two levels (strong, weak), in an experiment in which accounting professionals decide whether to book a questionable journal entry (i.e., a journal entry for which a reasonable business case can be made but there is no supporting documentation). We find that ethical leadership and the IAF interact to determine the likelihood that accountants book the entry. Specifically, accountants are less likely to book a questionable journal entry when there is a weak ethical leader and a strong IAF compared to all other conditions. In addition, we find that accountants question the appropriateness and ethicalness of the request to book an undocumented journal entry more in the weak ethical leader and strong IAF condition than in the other conditions. These results suggest that the IAF has a different impact on financial reporting decisions depending on the ethicalness of executive leadership and that a strong IAF may cause accountants to question the appropriateness and ethicalness of an undocumented journal entry when combined with weak ethical leadership. We also find that the interactive effect of ethical leadership and the IAF on an accountant’s decision is fully mediated by his/her perception of the moral intensity of the issue. Thus, accountants, who perceive greater moral intensity associated with booking the entry, are less willing to do so.


Ethics in accountingMoral intensityEthical leadershipMoral actionInternal audit functionFinancial reporting

Supplementary material

10551_2011_1133_MOESM1_ESM.doc (127 kb)
Supplementary material 1 (DOC 127 kb)

Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  • Barbara Arel
    • 1
  • Cathy A. Beaudoin
    • 1
  • Anna M. Cianci
    • 2
  1. 1.School of Business AdministrationUniversity of VermontBurlingtonUSA
  2. 2.Schools of BusinessWake Forest UniversityWinston SalemUSA