Prior research has documented the continued existence of an expectation gap, defined as the divergence between the public’s and the profession’s conceptions of auditor’s duties, despite the auditing profession’s attempt to adopt standards and practices to close this gap. In this paper, we consider one potential explanation for the persistence of the expectation gap: the role of media bias in shaping public opinion and views. We analyze press articles covering 40 U.S. corporate fraud cases discovered between 1992 and 2011. We compare the auditor’s duties, described by the auditing standards, with the description of the fraud cases as found in the press articles. We draw upon prior research to identify three sources of the expectation gap: deficient performance, deficient standards, and unreasonable expectations. The results of our analysis provide evidence that (1) the performance gap can be reduced by strengthening auditor’s willingness and ability to apply existing auditing standards concerning fraud detection; (2) the standards gap can be narrowed by improving existing auditing standards; and (3) unreasonable expectations, however, involve elements beyond the profession’s sphere of control. As a result, the expectation gap is unlikely to disappear given the media’s tendency to bias, with an overemphasis of unreasonable expectations in their coverage of frauds and press articles tending to reinforce the view that the auditor should take more responsibility for detecting fraud, irrespective of whether this is feasible at a reasonable cost. In addition to the primary role of the press in perpetuating the expectation gap, a second reason for continuation of the expectation gap is that the rational auditor will have difficulty in assessing subjective components of fraudulent behavior.
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Andon and Free (2014) provide a detailed definition of media bias. They argue that bias in the print media may take three forms: gatekeeping bias, coverage bias, and statement bias. There is an important field of literature on media bias in the political science discipline (see, e.g., Kuypers 2002).
For example, the European Green paper (European Commission 2010) speaks about the societal role of auditing, thereby enlarging the traditional shareholder-oriented perspective of the auditor’s role. One reason for this broader conception resides in Enron’s collapse, as the victims in that case were the employees and individuals who had worked for Enron and/or invested in Enron’s pension funds. Silvers [Associate General Counsel for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO)] (2007) further states that the auditing profession must respond to the concerns of the millions of U.S. “worker-owners” who invest their money directly or indirectly (through benefit plans and healthcare plans) into audited companies, as they have the most to lose from an investment decision based on inaccurate financial disclosures.
Gentzkow and Shapiro (2010) construct a measure of media slant. Their index measures the frequency with which newspapers use language that would tend to sway readers to the right or to the left on political issues. Gans and Leigh (2012) suggest different measures of media slant in the political area.
Cohen et al. (2010) identified 37 cases. We updated their database which ran until 2005 and added three more recent cases. These data were initially used by Cohen et al. (2010) to examine how the attitude and rationalization component of the fraud triangle can be documented through the use of press articles. That study did not use the data to examine the EG nor did it look at media bias in framing the perceptions of the fraud by the general public.
According to Groseclose and Milyo (2005), in a political context, the majority of U.S. mainstream general news sources through the early 2000s, with the exception of Fox News and the Washington Times, reflect a moderate or liberal orientation.
For example, if the press portrays the cases in personality terms, this could match people’s fundamental beliefs, as members of the public may believe that these cheating executives must have some unique personality traits common to “bad” people.
This concept has been developed in the communication literature (e.g., Thussu 2007).
SAS 99 (AICPA 2002) and ISA 240 (IFAC [International Federation of Accountants] 2005, 2009) include some consideration of these issues. In SAS 99, for example, personality traits are not mentioned per se. In the description of the concept of “rationalization,” the standard only refers to “some individuals [who] possess an attitude, character, or set of ethical values that allow them to knowingly and intentionally commit a dishonest act.” (Para. 7) [emphasis in the original text].
Gurun and Butler (2012) show that when local media report news about local companies, they use fewer negative words compared to the same media reporting about non-local companies. They document that one reason for this positive slant is the firms’ local media advertising expenditures. We believe that this result is not incompatible with our research question and results because all the companies involved in the cases of corporate frauds are “non-local,” i.e., well-known national U.S. firms.
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Factiva (Dow Jones Factiva) is a non-academic database of international news containing 20,000 worldwide full-text publications including The Financial Times, The Wall Street Journal, as well as the continuous information from Reuters, Dow Jones, and the Associated Press (see http://www.dowjones.com/factiva/features.asp). As a research tool Factiva is equivalent to the Lexis-Nexis database.
This is a per se indication of media bias—the media coverage is suggesting that the auditor should have done more than is required by the standards.
We searched the text of SAS 99 for the word “charity” and found no mention of the term. There is one occurrence of the term “charitable,” but it is not related to “rationalization.”
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The authors thank workshop participants at the University of Manchester, the 2011 annual congress of the French Accounting Association, the 2011 EIASM Workshop on Business Ethics, and the 2013 CAAA annual meeting for helpful comments as well as the comments of an anonymous reviewer, Markus Milne (the Editor), and Lori Holder-Webb. Cédric Lesage and Hervé Stolowy acknowledge the financial support of the HEC Foundation (Project F0802). They are members of the GREGHEC, CNRS Unit, UMR 2959. Yuan Ding acknowledges support from the CEIBS Research Funding. They also acknowledge Claire O’Hana for her able research assistance.
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Cohen, J., Ding, Y., Lesage, C. et al. Media Bias and the Persistence of the Expectation Gap: An Analysis of Press Articles on Corporate Fraud. J Bus Ethics 144, 637–659 (2017). https://doi.org/10.1007/s10551-015-2851-6
- Expectation gap
- Media bias
- Corporate fraud
- Management behavior
- Fraud-related professional standards