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Determinants of the Attitudes of Portuguese Accounting Students and Professionals Towards Earnings Management

Abstract

We revisit religiosity, gender, age, ethics education and experience as drivers of ethicality, while expanding prior research from Anglo-Saxon and Asiatic/Euro-Asiatic countries to a Latin European country, Portugal. We apply the Merchant (1989) instrument of attitudes towards earnings management, in a sample of Portuguese accounting students and alumni. We find no significant evidence of a positive association between religiosity and accountants’ judgments on earnings management. However, gender, age, education (and accounting ethics education) and experience are significant predictors of accountants’ judgments. The results are unchanged when we control for the intent (selfish benefit) of earnings management. Females, older individuals and alumni judge accounting earnings management more harshly than males, younger individuals, and students (who have not yet completed an accounting ethics course). A higher level of accounting work experience induces accountants to judge accounting earnings management as a less ethically questionable practice. This finding is theoretically relevant because it underscores the necessity of taking people’s constraints in the workplace into consideration when studying ethical behavior in business contexts. The results are also practically relevant, as they highlight the importance of a systematic ethics education throughout the accountant’s life.

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Notes

  1. 1.

    The four major banking scandals in Portugal involved the Banco Comercial Português (BCP), Banco Português de Negócios (BPN), Banco Privado Português (BPP) and Banco Espírito Santo (BES) (https://expresso.pt/economia/2015-12-30-Oito-anos%2D%2Dde-escandalos-financeiros).

  2. 2.

    See https://www.publico.pt/2019/01/09/politica/noticia/-30-anos-acusacoes-corrupcao-politica-1857182 for details about Portuguese scandals, such as, the “Hurricane Operation”, the “Freeport Case”, The “Marquis Operation” and the “Visa Gold Process”.

  3. 3.

    The Corruption Perceptions Index is a Transparency International’s flagship research product (https://www.transparency.org/cpi2019).

  4. 4.

    https://en.wikipedia.org/wiki/Religions_by_country

  5. 5.

    In 2020, in Portugal, there are seven accounting undergraduate degrees and 11 undergraduate degrees related (e.g., accounting and auditing, accounting and taxation, accounting and finance). Fifteen are offered Polytechnic Institutions. The ethics course is, generally, a course mandatory taught in the 5th or 6th semester of the degree, requiring the student to perform tests/written assignments. Students are approved if their average score is ≥10 points (out of 20).

  6. 6.

    Some authors reject the idea of two spheres of masculinity and femininity or male and female. There is a growing awareness that in different cultural contexts gender can be viewed as one or as many, rather than a binary variable (Woodhead 2013).

  7. 7.

    In Portugal, completed study of accounting ethics is a precondition of accountants’ professional qualification.

  8. 8.

    The Marlowe-Crowne Social Desirability scale and the Balanced Inventory of Desirable Responding scale are used under the direct measurement approach (Yang et al. 2017).

  9. 9.

    The questionnaire link was: https://www.survio.com/survey/d/Y5U6Y3H2V7U1L9E0R

  10. 10.

    School year of 2012/2013 was the first year where the university produced accounting undergraduates.

  11. 11.

    Real earnings management are scenarios 1; 2.1; 2.2; 4.1; 4.2, and 4.3; accounting earnings management are scenarios 3; 5.1; 5.2; 6.1; 6.2; 7.1, and 7.2 in the Part II of the Questionnaire (see Appendix 1).

  12. 12.

    No major cultural adjustments were made to the Merchant (1989) instrument, since the 13 scenarios included represent the Portuguese firms’ main motivations to manage earnings, i.e., tax and debt incentives (Moreira 2006; Marques et al. 2011). In particular, incentives related to tax minimization and debt renegotiation can be measured in scenarios 1., 5.1, and 5.2.; incentives related to debt contract or debt covenant violation avoidance can be measured using the remaining scenarios.

  13. 13.

    Kaiser-Meyer-Olkin (KMO) test is used to see how suitable our data is for factor analysis. The sampling adequacy for the complete model is 0.63, indicating the model is minimally adequate for factor analysis (Hair et al. 2006).

  14. 14.

    Eight students of our sample work in accounting area while attending the undergraduate degree in accounting.

  15. 15.

    A T-test shows (not reported) the individual mean values of REM are significantly lower than individual mean values of AEM at 1% level.

  16. 16.

    Prior studies found similar R2 values (e.g., Kurpis et al. 2008; Elias’s 2011; Kara et al. 2016).

  17. 17.

    We further tested the existence of differences between students and alumni based on religiosity with respect to attitudes towards earnings management. Unreported results show that the main findings remain unchanged (i.e., no significant differences were found).

  18. 18.

    Result remains qualitatively similar when we run Models (13), (14) and (15) excluding the 8 students that have working experience in accounting.

  19. 19.

    We used the unequal variances t-test since it is more reliable when the two samples have unequal variances and/or unequal sample sizes (Derrick et al. 2016).

  20. 20.

    Workplace spirituality includes aspects, either in the individual, the group, or the organization, that facilitates employees’ sense of being connected to a nonphysical force beyond themselves that provides feelings of completeness and joy (Comer and Vega 2011).

  21. 21.

    Results remain qualitatively similar if we restrict the sample to accounting students and alumni with working experience in accounting (66 individuals).

  22. 22.

    Lan et al. (2015) distinguished the intend of earnings management by providing two versions of the questionnaire to their respondents: version 1, with the explicit instruction that the primary intent of the CEO was selfish gain through enhanced remuneration; and version 2, with the explaining that the primary intent of the CEO was to maximize the benefits of financial reporting for the employees and shareholders and achieve the corporate governance objectives of the firm.

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Acknowledgements

We thank Professor Russell Craig for his useful suggestions and participants of the 1st EIASM Workshop on Preventing Accounting Scandals: Practices and Practitioners, 2019, for their helpful insights. We also appreciate the support of the Editor, Professor Deborah Poff and two anonymous reviewers, since their comments and suggestions have significantly improved the quality of our work.

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This paper is financed by National Funds of the FCT – Portuguese Foundation for Science and Technology within the project UID/ECO/03182/2019.

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Correspondence to Tânia Menezes Montenegro.

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Appendices

Appendix 1 Questionnaire

Appendix 2

Table 9 Table of variables

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Montenegro, T.M., Rodrigues, L.L. Determinants of the Attitudes of Portuguese Accounting Students and Professionals Towards Earnings Management. J Acad Ethics 18, 301–332 (2020). https://doi.org/10.1007/s10805-020-09376-z

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Keywords

  • Business ethics
  • Accounting ethics
  • Earnings management
  • Religiosity
  • Portugal