Discussion ofDiscussion of

Auditors’ Ability to Discern the Auditors’ Ability to Discern the Presence of Ethical ProblemsPresence of Ethical Problems

Julia N. Karcher Julia N. Karcher

Presenter: Shahriar M. SaadullahPresenter: Shahriar M. Saadullah

Research QuestionsResearch Questions

1.1. Are auditors alert to ethical issues?Are auditors alert to ethical issues?

2.2. If so, how important do they perceive them If so, how important do they perceive them to be? andto be? and

3.3. What factors affect their sensitivity What factors affect their sensitivity threshold and their perceptions of the threshold and their perceptions of the importance of the issues?importance of the issues?

Ethical SensitivityEthical Sensitivity

The ability to interpret a given situation The ability to interpret a given situation and to and to

realize that a moral problem existsrealize that a moral problem exists

Justification for the StudyJustification for the Study

Understanding factors that might predispose an Understanding factors that might predispose an

individual to ethical sensitivity researchers individual to ethical sensitivity researchers could assist could assist

educators and practitioners in developing educators and practitioners in developing programs to programs to

increase ethical sensitivity. increase ethical sensitivity.

Literature Review Literature Review

A Profession provides an important service, which is A Profession provides an important service, which is primarily monopolistic & self-regulated (Bayles primarily monopolistic & self-regulated (Bayles 1989)1989)

Physicians and lawyers have an obvious primary Physicians and lawyers have an obvious primary loyalty to their patients or clients, accountants may loyalty to their patients or clients, accountants may have a greater responsibility to the public (Westra have a greater responsibility to the public (Westra 1986)1986)

Literature ReviewLiterature Review

Four psychological processes needed to behave ethicallyFour psychological processes needed to behave ethically

1.1. Acknowledge the existence of the moral problemAcknowledge the existence of the moral problem

2.2. Determine the morally correct optionDetermine the morally correct option

3.3. Be willing to behave ethicallyBe willing to behave ethically

4.4. Be strong enough to follow throughBe strong enough to follow through

(Rest 1986)(Rest 1986)

Hypotheses 1 & 2Hypotheses 1 & 2

Propensity of detecting ethical problemsPropensity of detecting ethical problems

Varies with Varies with positionposition

Degree of importance of detected problemsDegree of importance of detected problems

Hypothesis 3Hypothesis 3

Ethical Sensitivity isEthical Sensitivity is

positively associated withpositively associated with

Frequency of ExposureFrequency of Exposure

Hypotheses 4 & 5Hypotheses 4 & 5

CPAs with advanced CPAs with advanced degreesdegrees

adjusted for position adjusted for position effectseffects

is higher foris higher for

Level of SensitivityLevel of Sensitivity

varies inversely withvaries inversely with Age adjusted for degree Age adjusted for degree and and position effectsposition effects

Hypothesis 6Hypothesis 6

Ethical Sensitivity Ethical Sensitivity

is positively is positively associatedassociated

ExpertiseExpertise

Research DesignResearch Design

Subjects were asked to list any problems the Subjects were asked to list any problems the identified with three hypothetical cases identified with three hypothetical cases

105 responded out of 250 requests sent to 105 responded out of 250 requests sent to Big Six firms (41.2% response rate)Big Six firms (41.2% response rate)

2 responses were unusable2 responses were unusable

Research DesignResearch Design

ResultsResults

H 1 & 2:H 1 & 2: Differs with position (It doesn’t)Differs with position (It doesn’t)H 3: H 3: Positively associated with exposure (It doesn’t)Positively associated with exposure (It doesn’t)H 4:H 4: Better with advanced degrees (It’s not)Better with advanced degrees (It’s not)H 5: H 5: Inversely related with age (It’s positively Inversely related with age (It’s positively

related)related)H 6: H 6: Positively associated with expertise (It’s not)Positively associated with expertise (It’s not)

ConclusionConclusion

Majority of accountants were sensitive to potential Majority of accountants were sensitive to potential problems but problems but

varied in assigning degrees of importance – varied in assigning degrees of importance –

Tax invasion was rated of high importance by 94.3%,Tax invasion was rated of high importance by 94.3%, Independence by 72.7%, andIndependence by 72.7%, and Plant relocation by 43.2%.Plant relocation by 43.2%.

Profession’s governing bodies and academia must take Profession’s governing bodies and academia must take steps to steps to

ensure that accountants are not merely technocratic ensure that accountants are not merely technocratic

functionariesfunctionaries