Advertisement

The Influence of Ethical Codes of Conduct on Professionalism in Tax Practice

  • Darius Fatemi
  • John HasseldineEmail author
  • Peggy Hite
Original Paper

Abstract

Professional integrity is a fundamental principle of the International Ethics Standards Board for Accountants Code of Ethics (IESBA, in Code of ethics for professional accountants, IFAC, New York; IESBA, Code of ethics for professional accountants, IFAC, New York, 2016). This does not apply directly to members of a particular professional body, but rather member organizations from around the globe are required to adopt a code no less stringent than the principles in the IESBA Code. Hence, all professional accountants are required to possess integrity as a core ethical principle. In the USA, certified public accountants must, in addition, also adhere to the principle of client advocacy in relation to their tax clients. Despite extensive prior literature on accounting ethics, firm culture, and ethical codes, no prior research has tested whether the communication of an Integrity ethical standard actually affects practitioners’ actual judgments and decisions. In this study, we use brief interventions to determine whether a prime of two ethical professional standards (Integrity; Advocacy) affects tax practitioners’ recommendations to their clients. One implication for professionalism in tax practice is our finding that a brief intervention of professional standards can directly impact on practitioners’ judgments. Most notably, a joint presentation of Advocacy and Integrity leads to contrasting results that depend on the order of the intervention. In sum, when the Integrity (Advocacy) standard was presented before the Advocacy (Integrity) standard, tax practitioners were significantly less (more) likely to choose a tax-favorable outcome. That is, the order of professional ethical standard intervention significantly affects tax practitioners’ judgments.

Keywords

AICPA Client advocacy Code of ethics IESBA Integrity Professional ethics Tax practitioners 

Notes

Acknowledgements

This paper has benefitted from the detailed and helpful comments of the associate editor (Muel Kaptein) and three anonymous reviewers. We thank our participants and gratefully acknowledge funding from the National Association of State Boards of Accountancy (NASBA).

Funding

This study was funded by the National Association of State Boards of Accountancy (grant number 14ND27).

Compliance with Ethical Standards

Conflict of interest

Author Fatemi declares that he has no conflict of interest. Author Hasseldine declares that he has no conflict of interest. Author Hite declares that she has no conflict of interest.

Supplementary material

10551_2018_4081_MOESM1_ESM.doc (66 kb)
Supplementary material 1 (DOC 65 KB)

References

  1. AICPA. (2010). AICPA code of professional conduct. New York: AICPA.Google Scholar
  2. AICPA. (2014). AICPA code of professional conduct. New York: AICPA.Google Scholar
  3. Asay, S., Brown, T., Nelson, M., & Wilks, J. (2017). The effects of out-of-regime guidance on auditor judgments about appropriate applications of accounting standards. Contemporary Accounting Research, 34(2), 1026–1047.Google Scholar
  4. Ayres, F., Jackson, B., & Hite, P. (1989). The economic benefits of regulation: Evidence from professional tax preparers. The Accounting Review, 64(2), 300–312.Google Scholar
  5. Barrick, J., Cloyd, B., & Spilker, B. (2004). The influence of biased tax memoranda on supervisors’ initial judgments in the review process. Journal of the American Taxation Association, 26(1), 1–21.Google Scholar
  6. Baudot, L., Roberts, R. W., & Wallace, D. M. (2017). An examination of the U.S. public accounting profession’s public interest discourse and actions in federal policy making. Journal of Business Ethics, 142(2), 203–220.Google Scholar
  7. Bayou, M., Reinstein, A., & Williams, P. (2011). To tell the truth: A discussion of issues concerning truth and ethics in accounting. Accounting, Organizations and Society, 36(2), 109–124.Google Scholar
  8. Beets, S. D., & Killough, L. N. (1990). The effectiveness of a complaint-based ethics enforcement system: Evidence from the accounting profession. Journal of Business Ethics, 9(2), 115–126.Google Scholar
  9. Bhattacharjee, S., Maletta, M., & Moreno, K. (2007). The cascading of contrast effects on auditors’ judgments in multiple client audit environments. The Accounting Review, 82(5), 1097–1117.Google Scholar
  10. Bobek, D., Hageman, A., & Hatfield, R. (2010). The role of client advocacy in the development of tax professionals’ advice. Journal of the American Taxation Association, 32(1), 25–51.Google Scholar
  11. Bobek, D., Hageman, A., & Radtke, R. (2015a). The effects of professional role, decision context, and gender on the ethical decision making of public accounting professionals. Behavioral Research in Accounting, 27(1), 55–78.Google Scholar
  12. Bobek, D., Hageman, A., & Radtke, R. (2015b). The influence of roles and organizational fit on accounting professionals’ perceptions of their firms’ ethical environment. Journal of Business Ethics, 126(1), 125–141.Google Scholar
  13. Bonner, S. (2008). Judgment and decision making in accounting. Upper Saddle River: Pearson/Prentice Hall.Google Scholar
  14. Brouard, F., Bujaki, M., Durocher, S., & Neilson, L. C. (2017). Professional accountants’ identity formation: An integrative framework. Journal of Business Ethics, 142(2), 225–238.Google Scholar
  15. Carnegie, G., & Napier, C. (2010). Traditional accountants and business professionals: Portraying the accounting profession after Enron. Accounting, Organizations and Society, 35(3), 360–376.Google Scholar
  16. Chartered Institute of Taxation. (2018). Professional conduct in relation to taxation. London: CIOT.Google Scholar
  17. Christensen, A. (1992). Evaluation of tax services: A client and preparer perspective. Journal of the American Taxation Association, 14(2), 60–87.Google Scholar
  18. Cloyd, B., & Spilker, B. (1999). The influence of client preferences on tax professionals’ search for judicial precedents, subsequent judgments and recommendations. The Accounting Review, 74(3), 299–322.Google Scholar
  19. Cloyd, B., Spilker, B., & Wood, D. (2012). The effects of supervisory advice on tax professionals’ information search behaviors. Advances in Taxation, 20, 135–158.Google Scholar
  20. Collins, A., & Schulz, N. (1995). A critical examination of the AICPA code of professional conduct. Journal of Business Ethics, 14(1), 31–41.Google Scholar
  21. Cooper, D. J., & Robson, K. (2006). Accounting, professions and regulation: Locating the sites of professionalization. Accounting, Organizations and Society, 31(4–5), 415–444.Google Scholar
  22. Coram, P., & Robinson, M. (2017). Professionalism and performance incentives in accounting firms. Accounting Horizons, 31(1), 103–123.Google Scholar
  23. Cuccia, A., Hackenbrack, K., & Nelson, M. (1995). The ability of professional standards to mitigate aggressive reporting. The Accounting Review, 70(2), 227–248.Google Scholar
  24. David, J. M., Kantor, J., & Greenberg, I. (1994). Possible ethical issues and their impact on the firm: Perceptions held by public accountants. Journal of Business Ethics, 13(12), 919–937.Google Scholar
  25. Davis, J., & Mason, D. (2003). Similarity and precedent in tax authority judgment. Journal of the American Taxation Association, 25(1), 53–71.Google Scholar
  26. Desai, R., & Roberts, R. (2013). Deficiencies in the code of conduct: The AICPA rhetoric surrounding the tax return preparation outsourcing disclosure rules. Journal of Business Ethics, 114(3), 457–471.Google Scholar
  27. Doyle, E., Frecknall-Hughes, J., & Summers, B. (2009). Research methods in taxation ethics: Developing the defining issues test (DIT) for a tax specific scenario. Journal of Business Ethics, 88(1), 35–52.Google Scholar
  28. Doyle, E., Frecknall-Hughes, J., & Summers, B. (2013). An empirical analysis of the ethical reasoning process of tax practitioners. Journal of Business Ethics, 114(2), 325–339.Google Scholar
  29. Doyle, E., Frecknall-Hughes, J., & Summers, B. (2014). Ethics in tax practice: A study of the effect of practitioner firm size. Journal of Business Ethics, 122(4), 623–641.Google Scholar
  30. Fleischman, G., & Stephenson, T. (2012). Client variables associated with four key determinants of demand for tax preparer services: An exploratory study. Accounting Horizons, 26(3), 417–437.Google Scholar
  31. Fogarty, R., & Jones, D. (2014). Between a rock and a hard place: How tax practitioners straddle client advocacy and professional responsibilities. Qualitative Research in Accounting and Management, 11(4), 286–316.Google Scholar
  32. Frecknall-Hughes, J., & Kirchler, E. (2015). Towards a general theory of tax practice. Social & Legal Studies, 24(2), 289–312.Google Scholar
  33. Frecknall-Hughes, J., Moizer, P., Doyle, E., & Summers, B. (2017). An examination of ethical influences on the work of tax practitioners. Journal of Business Ethics, 146(4), 729–745.Google Scholar
  34. Good, P. I. 2005. Resampling methods: A practical guide to data analysis (3rd ed.). Boston: Birkhäuser.Google Scholar
  35. Gunz, S., & Thorne, L. (2017). Introduction to thematic symposium on accounting professionalism. Journal of Business Ethics, 142(2), 199–201.Google Scholar
  36. Hackenbrack, K., & Nelson, M. (1996). Auditors’ incentives and their application of financial accounting standards. The Accounting Review, 71(1), 43–59.Google Scholar
  37. Hume, E. C., Larkins, E. R., & Iyer, G. (1999). On compliance with ethical standards in tax return preparation. Journal of Business Ethics, 18(2), 229–238.Google Scholar
  38. ICAEW. (2007). Reporting with integrity: Information for better markets initiative. London: ICAEW.Google Scholar
  39. IESBA. (2016). Code of ethics for professional accountants. New York: IFAC.Google Scholar
  40. IFAC. (2017). International standards: 2017 global status report. New York: IFAC.Google Scholar
  41. IRS. (2009). Return preparer review. Washington DC: IRS.Google Scholar
  42. Jenkins, J. G., Popova, V., & Sheldon, M. D. (2018). In support of public or private interests? An examination of sanctions imposed under the AICPA code of professional conduct. Journal of Business Ethics, 152, 523–549.Google Scholar
  43. Johnson, L. (1993). An empirical investigation of the effects of advocacy on preparers’ evaluations of judicial evidence. Journal of the American Taxation Association, 15(1), 1–22.Google Scholar
  44. Kadous, K., & Magro, A. (2001). The effects of exposure to practice risk on tax professionals’ judgments and recommendations. Contemporary Accounting Research, 18(3), 451–475.Google Scholar
  45. Kadous, K., Magro, A., & Spilker, B. (2008). Do effects of client preference on accounting professionals’ information search and subsequent judgments persist with high practice risk? The Accounting Review, 83(1), 133–156.Google Scholar
  46. Klayman, J. (1995). Varieties of confirmation bias. The Psychology of Learning and Motivation, 32, 385–415.Google Scholar
  47. Levy, L. (1996). Evidence evaluation and aggressive reporting in ambiguous tax situations. Ph.D Dissertation, University of Colorado.Google Scholar
  48. Libby, R. (1981). Accounting and human information processing: Theory and applications. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  49. Lindblom, C., & Ruland, R. G. (1997). Functionalist and conflict views of AICPA code of conduct: Public interest vs. self interest. Journal of Business Ethics, 16(5), 573–582.Google Scholar
  50. Maletta, M., & Zhang, Y. (2012). Investor reactions to the contrasts between the earnings preannouncements of peer firms. Contemporary Accounting Research, 29(2), 361–381.Google Scholar
  51. Marshall, R. L., Armstrong, R. W., & Smith, M. (1998). The ethical environment of tax practitioners: Western Australian evidence. Journal of Business Ethics, 17(12), 1265–1279.Google Scholar
  52. Mason, J., & Levy, L. (2001). The use of latent constructs method in behavioral accounting research: The measurement of client advocacy. Advances in Taxation, 13, 123–139.Google Scholar
  53. Metzger, L. (2011). The keys to integrity and a sense of well-being for accounting professionals. CPA Journal, 81(3), 10–12.Google Scholar
  54. Mulligan, E., & Oats, L. (2016). Tax professionals at work in Silicon Valley. Accounting, Organizations and Society, 52(1), 63–76.Google Scholar
  55. New York, NY: Birkhauser Boston.Google Scholar
  56. Payne, D., & Raiborn, C. (2018). Aggressive tax avoidance: A conundrum for stakeholders, governments, and morality. Journal of Business Ethics, 147(3), 469–487.Google Scholar
  57. Pinsker, R., Pennington, R., & Schafer, J. (2009). The influence of roles, advocacy, and adaptation to the accounting decision environment. Behavioral Research in Accounting, 21(2), 91–111.Google Scholar
  58. Richardson, A. (2018). The accounting profession. In R. Roslender (Ed.), The Routledge companion to critical accounting (pp. 127–142). New York: Routledge.Google Scholar
  59. Roberts, M. (1998). Tax accountants’ judgment and decision-making research: A review and synthesis. Journal of the American Taxation Association, 20(1), 78–121.Google Scholar
  60. Sikka, P. (2009). Financial crisis and the silence of the auditors. Accounting, Organizations and Society, 34(6–7), 868–873.Google Scholar
  61. Spalding, A. D., & Lawrie, G. R. (2017). A critical examination of the AICPA’s new “conceptual framework” ethics protocol. Journal of Business Ethics.  https://doi.org/10.1007/s10551-017-3528-0.Google Scholar
  62. Spilker, B., Stewart, B., Wilde, J., & Wood, D. (2016). A comparison of U.S. and offshore Indian tax professionals’ client advocacy attitudes and client recommendations. Journal of the American Taxation Association, 38(2), 51–66.Google Scholar
  63. Stephenson, T. (2007). Do clients share preparers’ self-assessment of the extent to which they advocate for their clients? Accounting Horizons, 21(4), 411–422.Google Scholar
  64. Suddaby, R., Gendron, Y., & Lam, H. (2009). The organizational context of professionalism in accounting. Accounting, Organizations and Society, 34(3–4), 409–427.Google Scholar
  65. West, A. (2018). After virtue and accounting ethics. Journal of Business Ethics, 148(1), 21–36.Google Scholar
  66. Wyatt, A. (2004). Accounting professionalism—they just don’t get it. Accounting Horizons, 18(1), 45–53.Google Scholar
  67. Zeff, S. (2003a). How the U.S. accounting profession got where it is today: Part 1. Accounting Horizons, 17(3), 189–205.Google Scholar
  68. Zeff, S. (2003b). How the U.S. accounting profession got where it is today: Part 2. Accounting Horizons, 17(4), 267–286.Google Scholar

Copyright information

© Springer Nature B.V. 2018

Authors and Affiliations

  1. 1.Haile/US Bank College of BusinessNorthern Kentucky UniversityHighland HeightsUSA
  2. 2.Paul College of Business and EconomicsUniversity of New HampshireDurhamUSA
  3. 3.Kelley School of BusinessIndiana UniversityBloomingtonUSA

Personalised recommendations