This study investigates the interaction effects of locus of control, a personality variable, and ethical reasoning on the behaviour of auditors in an audit conflict situation. Eighty experienced auditors from a sample of Big Six and Non-Big Six CPA firms in Hong Kong were provided with a case study involving an audit conflict situation and were asked to state the extent to which they would accede to the client’s request. Subjects were also administered Rotter’s Locus of Control Scale and the Defining Issues Test (DITJ to measure ethical reasoning.
Analyses of the data using multiple regression found that ethical reasoning moderated the relationship between locus of control and the auditors’ responses to accede to client’s request in an audit contlict situation. An implication of these results is that the explicit recognition of both locus of control and ethical reasoning provides a better explanation for differences in auditors’ ethical decision making The issue of ethical behaviour of accountants has recently been a source of much concern and research interest (Cohen et al. , 1993).
A discernable strand of thls research interest attempts to unravel and evaluate the factors that could affect ethical behaviour of accountants (Shaub, 1989; Ponemon, 1990; Ponemon & Gabhart, 1993). These studies emphasized the notion that the cognitive processes of individuals should not be treated as a “black box”, but should be explicitly recognized since these processes are expected to affect individuals’ ethical decision making (Ponemon, 1990; 1992a; 1992b; Ponemon & Gabhart, 1990). More specifically, these studies “incorporate
or expressly consider a psychological framework for the ethical reasoning process” in order to answer the question what makes accountants more or less ethical? (Jones & Ponemon, 1993, p. 411). The psychological framework for ethical reasoning which is based on Kohlberg’s (1969) Theory of Cognitive Moral Development uses the Defining Issues Test (Rest, 1979) to measure an individual’s level of ethical reasoning. Using the P scores, ’ individuals are classified The authors would like to acknowledge the comments of Mark Young and Chee Chow, two anonymous reviewers and the editor.
The research instruments used in this study are available from the authors. l 1 The P score measures the relative importance of stages five and six of ethical reasoning. Ponemon (1992b, suggests that “the higher P score implies a lower percentage of stages 1 through 4. ” 41 p. 182) 42 J. S. L. TSUI and F. A. GUL into different levels of ethical reasoning. Based on this theory, several studies have found sup port for the notion that the levels of ethical reasoning are related to auditors’ professional judgments (Ponemon, 1990; 1992a; 1992b;
Ponemon & Gabhart, 1990; Tsui, 1994). For example, Ponemon (1992b) found that those auditors with lower levels of ethical reasoning tended to underreport their chargeable time more severely than those with higher levels of ethical reasoning. Unfortunately, consideration of the cognitive process by way of the ethical reasoning process, by itself, is an inadequate characterization of the “black box” since it fails to recognize the role of other “individual” differences, such as personality which may be defined as individuals’ attitudes and beliefs
(Pratt, 1980; Gul, 1984). Trevino (1986, p. 602) recognized this and argued that: the individual’s cognitive moral development stage determines how an individual thinks about ethical dilemmas, his or her process of deciding what is right or wrong in a situation. However, cognitions of right and wrong are not enough to explain or predict ethical decision-making behaviour. Additional individual and situational variables interact with the cognitive compo nent to determine how an individual is likely to behave in response to an ethical dilemma. Trevino (1986, p.
602) went on to suggest that the individual differences variable, or specititally such personality variables as locus of control (Rotter, 1966), could interact with ethical reasoning to affect individual behaviour in an ethical dilemma. Locus of control is defined as (MacDonald, 1976, p. 169): the extent to which persons perceive contingency relationships between their actions and their outcomes. Persons who believe that they have some control over their destinies are called ‘internals’; that is, they believe that at least some control resides within themselves.
Xxtemafs’, on the other hand, believe that their outcomes are determined by agents or factors extrinsic to themselves, for example, by fate, luck, chance, powerful others or the unpredictable. Trevino (1986) suggested that since externals rely on fate, luck and chance, they are more likely to behave unethically than internals who are able to rationalize and control their behaviour. Similarly, internals who believe that events are under their control would take responsibility in their determination of right and wrong, thus behaving more ethically than externals. Rotter (1966)
argued that the intemalexternal construct is a unidimensional personality variable that is stable (Ashlcanasy, 1985, p. 1328). Thus, personality traits such as locus of control are relatively more stable in an individual (Roford & Penno, 1992, p. 128) than ethical reasoning levels since these levels may be improved through ethical intervention and formal education. Thus, a more fruitful approach to the study of how auditors make ethical decisions should explicitly recognize that ethical reasoning levels and locus of control would jointly influence ethical decision making (Trevino, 1986).
Such a model (Fig. 1) is likely to significantly improve attempts at not only predicting and understanding ethical behaviour, but also developing ethical intervention strategies. The present study which extends previous accounting ethics literature explores and tests the notion that the effects of locus of control on auditors’ decision making depend on an individual’s level of ethical reasoning. The particular decision-making task that is selected for study is the auditors’ ability to resist management pressure in an audit contlict situation. Two reasons motivated this decision.