Journal of Business Ethics

, Volume 60, Issue 2, pp 115–129

Unethical and Fraudulent Financial Reporting: Applying the Theory of Planned Behavior

Article

Abstract

This research applies the theory of planned behavior to corporate managers’ decision making as it relates to fraudulent financial reporting. Specifically, we conducted two studies to examine the effects of attitude, subjective norm and perceived control on managers’ decisions to violate generally accepted accounting principles (GAAP) in order to meet an earnings target and receive an annual bonus. The results suggest that the theory of planned behavior predicts whether managers’ decisions are ethical or unethical. These findings are relevant to corporate leaders who seek to improve ethical work climates of organizations and to many regulators, accountants, corporate governance officials and investors.

Keywords

ethics financial reporting fraud managerial decision making theory of planned behavior 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. American Institute of Certified Public Accountants (AICPA)2002‘Consideration of Fraud in a Financial Statement Audit’AICPANew York, NYStatement on Auditing Standards No. 99Google Scholar
  2. American Institute of Certified Public Accountants (AICPA): 2003, ‘Professional Ethics’, http://aicpa.org.Google Scholar
  3. Albrecht, W. S., Romney, M. B. 1986‘Red-Flagging Management Fraud: A Validation’Advances in Accounting3323333Google Scholar
  4. Ajzen, I. 1985

    ‘From Intentions to Actions: A Theory of Planned Behavior’

    Kuhland, J.Beckman, J. eds. Action-Control: From Cognitions to BehaviorSpringerHeldeberg1139
    Google Scholar
  5. Ajzen, I. 1991‘The Theory of Planned Behavior’Organizational Behavior & Human Decision Processes50179211Google Scholar
  6. Ajzen, I., Fishbein, M. 1980Understanding Attitudes and Predicting Social BehaviorPrentice-HallUpper Saddle River, NJGoogle Scholar
  7. Ajzen, I., Madden, T. J. 1986‘Prediction of Goal Directed Behavior: Attitudes, Intentions, and Perceived Behavioral Control’Journal of Experimental Social Psychology22453474CrossRefGoogle Scholar
  8. Association of Certified Fraud Examiners: 2002, ‘Report␣to the Nation’, http://marketplace.cfcnet.com/ downloads.asp.Google Scholar
  9. Bell, T. B., Carcello, J. V. 2000‘A Decision Aid for Assessing the Likelihood of Fraudulent Financial Reporting’Auditing: A Journal of Practice and Theory19169184Google Scholar
  10. Bruns, W. J. and K. A. Merchant: 1990, ‘The Dangerous Morality of Managing Earnings’, Management Accounting, 22–25.Google Scholar
  11. Burns, J.: 2002, February 20, ‘SEC Fields Tips Linked to Fraud at Record Pace’, Wall Street Journal, B.5.N.Google Scholar
  12. Chang, M. K. 1998‘Predicting Unethical Behavior: A Comparison of the Theory of Reasoned Action and the Theory of Planned Behavior’Journal of Business Ethics1718251834CrossRefGoogle Scholar
  13. Cordano, M., Frieze, I. H. 2000‘Pollution Reduction Preferences of U.S. Environmental Managers: Applying Ajzen’s Theory of Planned Behavior’Academy of Management Journal43627641Google Scholar
  14. Dubinsky, A. J., Ingram, T. N. 1984‘Correlates of Salespeople’s Ethical Conflict: An Exploratory Investigation’Journal of Business Ethics3343353CrossRefGoogle Scholar
  15. Dye, R. A. 1988‘Earnings Management in an Overlapping Generations Model’Journal of Accounting Research26195235Google Scholar
  16. Fishbein, M., Ajzen, I. 1975Belief, Attitude, Intention, and Behavior: An Introduction to Theory and ResearchAddison WesleyReading, MAGoogle Scholar
  17. Flannery, B. L., May, D. R. 2000‘Environmental Ethical Decision Making in the U.S. Metal Finishing Industry’Academy of Management43642662Google Scholar
  18. Glover, S. H., Bumpus, M. A., Sharp, G. F., Munchus, G. A. 2002‘Gender Differences in Ethical Management’Women in Management Review17217227CrossRefGoogle Scholar
  19. Kaplan, S. E. 2001a‘Further Evidence on the Ethics of Managing Earnings: An Examination of the Ethically Related Judgments of Shareholders and Non-Shareholders’Journal of Accounting and Public Policy202744CrossRefGoogle Scholar
  20. Kaplan, S. E. 2001‘Ethically related judgments of observers of earnings management’Journal of Business Ethics32285298CrossRefGoogle Scholar
  21. Larkin, J. M. 2000‘The Ability of Internal Auditors to Identify Ethical Dilemmas’Journal of Business Ethics23401409CrossRefGoogle Scholar
  22. Loebbecke, J. K., Eining, M. M., Willingham, J. J. 1989‘Auditors’ Experience with Material Irregularities: Frequency, Nature and Detectability’Auditing: A Journal of Practice and Theory8128Google Scholar
  23. Lozano, J. M. 1996‘Ethics and Management: A Controversial Issue’Journal of Business Ethics15227237CrossRefGoogle Scholar
  24. Madden, T. J., Ellen, P. S., Ajzen, I. 1992‘A Comparison of the Theory of Planned Behavior and the Theory of Reasoned Action’Personality and Social Psychology Bulletin1839Google Scholar
  25. Minkes, A. L., Small, M. W., Chaterjee, S. R. 1999‘Leadership and Business Ethics: Does it Matter? Implications for Management’Journal of Business Ethics20327335CrossRefGoogle Scholar
  26. Nieschwietz, R., J. Schultz, and M. Zimbelman: 2000, ‘Empirical Research on External Auditors’ Detection of Financial Statement Fraud’, Journal of Accounting Literature, 190–246.Google Scholar
  27. Palmrose, Z.-V. 1987‘Litigation and Independent Auditors: The Role of Business Failures and Management Fraud’Auditing: A Journal of Practice and Theory690103Google Scholar
  28. Public Oversight Board2000The Panel on Audit Effectiveness: Report and RecommendationsStamfordCTGoogle Scholar
  29. Pulliam, S.: 2003, ‘Over the Line: A Staffer Ordered to Commit Fraud Balked, then Caved Pushed by WorldCom Bosses, Accountant Betty Vinson Helped Cook the Books – a Confession at the Marriott’, Wall Street Journal, A1.Google Scholar
  30. Randall, D. M., Gibson, A. M. 1991‘Ethical Decision Making in the Medical Profession: An Application of the Theory of Planned Behavior’Journal of Business Ethics10111122CrossRefGoogle Scholar
  31. Reinstein, A. and G. Coursen: 1999, ‘Considering the Risk of Fraud: Understanding the Auditor’s New Requirements’, The National Public Accountant, 34–38.Google Scholar
  32. Rosenburg, R. R. 1984‘Managerial Morality and Behavior: The Questionable Payment Issue’Journal of Business Ethics62336CrossRefGoogle Scholar
  33. Rosenzweig, K. and M. Fischer: 1994, ‘Is Managing Earnings Ethically Acceptable?’ Management Accounting, 31–34.Google Scholar
  34. Ruegger, D., King, E. W. 1992‘A Study of the Effect of Age and Gender upon Student Business Ethics’Journal of Business Ethics11179186CrossRefGoogle Scholar
  35. Securities and Exchange Commission (SEC): 2003, ‘Final Rule: Disclosure Required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002’, http://sec.gov.Google Scholar
  36. Sheppard, B. H., Hartwick, J., Warshaw, P. R. 1988‘The Theory of Reasoned Action: A Meta-Analysis of Research and Recommendations for Modifications to Future Research’Journal of Consumer Research153243CrossRefGoogle Scholar
  37. Tatum, K. et al. (American Accounting Association Auditing Standards Committee): 2000, ‘Fraud: A Review of Academic Literature’, Auditors Report24(2).Google Scholar
  38. Treadway Commission1999‘Fraudulent Financial Reporting: 1987–1997, An Analysis of U.S. Public Companies’Committee of Sponsoring Organizations of the Treadway CommissionNew YorkGoogle Scholar
  39. Wahn, J. 2003‘Sex Differences in Competitive and Compliant Unethical Work Behavior’Journal of Business and Psychology18121127CrossRefGoogle Scholar

Copyright information

© Springer 2005

Authors and Affiliations

  1. 1.Crummer Graduate School of BusinessRollins College-CrummerWinter ParkU.S.A.

Personalised recommendations