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Journal of Accounting Education, Vol. 14, No. 3, pp. 259-276, 1996 Copyright 1996 ElsevierScience Ltd Printed in Great Britain. All rights reserved 0748-5751/96 $15.00 + 0.00

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Main Articles

ARE THE EFFECTS OF ACCOUNTING ETHICS INTERVENTIONS TRANSITORY OR PERSISTENT?


R. Michael LaGrone, Ralph E. Welton and James R. Davis

CLEMSON UNIVERSITY
Abstract: This paper examines whether an ethics intervention administered during a graduate course in accounting is effective, and if effective, whether the observed moral development gains are transitory or persistent. An instrument that identifies the subjects' stages of ethical reasoning was used to assess the effectiveness of the intervention. An experiment and control group completed the test instrument at the beginning of the term prior to the intervention. At the end of the term, and 6 months after completing the term, students repeated this task. The results of this study indicate that the ethics intervention fosters the students' abilities to consistently consider ethical issues in their decision-making processes. However, gains in moral development appear to be transitory. These findings suggest that accountants may attain their highest state of ethical awareness if ethics issues are made a part of their continuing education programs. Copyright 1996 Elsevier Science Ltd

INTRODUCTION Increased evidence of ethical misconduct in business has emphasized the need for stronger professional ethics. To meet this challenge, business and society have called for higher education to become involved in ethics instruction. The Treadway Commission (National Commission on Fraudulent Financial Reporting 1987), the AACSB (1988), the AICPA (1988), and the Accounting Education Change Commission (1990) have urged business and accounting programs to implement ethics instruction. In recent years ethics instruction has found its way into many business programs. With this increase in classroom exposure to ethics comes the need to assess the effectiveness of such instruction (Loeb, 1991; Weber, 1990). This paper examines the ex-post effects of exposing accounting students to professional ethics during graduate study. Accounting ethics researchers (Welton et al., 1994; Armstrong, 1993; Hiltebeitel & Jones, 1991) suggest that appropriately designed ethics interventions foster the student's ability to consider ethical issues in the business decision-making process. Arlow and Ulrich (1985) investigated the persistence of an ethics treatment on undergraduate accounting and business students. Previous research has not dealt with the persistent effect of ethics education on accounting graduate students.
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Moral reasoning is concerned with the process that individuals follow in making decisions with ethical implications. From the early work of Piaget and others, Kohlberg (1984) developed a theory of cognitive moral reasoning and development. He defined three levels of moral development that are subdivided into six invariant stages. At the midpoint of this continuum, the conventional level, a person either makes moral judgments that are considered to be good within the context of interpersonal relationships and expectations (Stage 3), or begins to exhibit values that reflect a concern for law and order (Stage 4). As a convenient reference these stages, with related levels, are paraphrased in Table 1. The majority of individuals never develop moral reasoning beyond the conventional level. This is unfortunate because the post-conventional level (Stages 5 and 6) represents an orientation toward the rights of individuals, concern for justice, and the application of universal moral principles. Kohlberg believes that moral development beyond the law and order phase (Stage 4) requires exposure to diverse experiences. His research (Kohlberg, 1984, pp. 485-459) indicates that post-conventional development rarely occurs before individuals reach their mid-twenties. Thus, graduate school or early in an individual's career is an appropriate time to attempt to enhance moral reasoning.

T a b l e 1. K o h l b e r g ' s s t a g e s of m o r a l d e v e l o p m e n t Preconvent|onal level Stage 1. Adhering to rules because punishment can be imposed by a superior authority. "Right" is characterized as what is in one's own best interest. Stage 2. Following rules when in one's best interest and recognizing that others are doing the same, bargaining with authority. The concept of what is " r i g h t " is characterized as the results of an equal exchange, deal, or bargained position. Conventional level Stage 3. Seeking approval of friends and family, the need to be good in your own eyes. Within individual relatonships, "right" consists of living up to expectations of trust, loyalty, respect, etc. Stage 4. Obeying laws and fulfilling duties imposed by agreement to avoid the breakdown of society, groups, or institutions. "Right" is making a contribution to society, groups, or institutions. PostconvenUonal level Stage 5. Awareness of other people's rights, universal principles of justice. Concern that laws be based on the concept of "the greatest good for the greatest number". Stage 6. Concern with consistent ethical principles, equality of human rights and respect for the dignity of human beings as individuals. Actions are in accord with these principles when laws violate them.

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Although the theory of moral development is not situation specific, exposure to various laws, organizational policies, codes of ethics, and the specifics of any given situation are inputs in the reasoning process. In decision making, ethical confusion is not always resolved in the direction of the higher levels. Kohlberg's stages are sequential. An individual who has developed the ability to reason at a post-conventional stage will not always advocate a solution consistent with that stage. All lower stage alternatives are inputs to the individual's decision process. As the result of this paradox, an individual's level of moral reasoning can only be identified through repeated observation. EVALUATING PROFESSIONAL ACCOUNTANTS' LEVELS OF MORAL REASONING Using Kohlberg's stages, researchers have constructed several psychometric instruments to measure an individual's level of moral reasoning. The two most commonly used instruments are the Moral Judgement Interview (MJI) and the Defining Issues Test (DIT). These instruments include multiple scenarios so that an individual's level of moral reasoning can be identified through repeated observation. Kohlberg and his colleagues developed the MJI while Rest (1979), a protege of Kohlberg, and his colleagues developed the DIT. Since the MJI requires personal interviews it is less popular than the DIT which is a self-administered objective format questionnaire. Much research has been conducted to validate the DIT stage-sequence model of ethical development (see Center for the Study of Ethical Development, 1990). Bebeau et al. (1985) note that Kohlberg's higher stages of moral development (Stages 5 and 6) seem consistent with our society's concept of being a professional. However, research indicates that the majority of accountants, like the general population, do not mature beyond the conventional level. Using the DIT, Armstrong (1987, p. 33) found that practicing CPAs "appear to have reached the moral maturation level of adults in general, instead of maturing even to the level of college students, much less to the level of college graduates". She concludes that the CPAs' college education may not have fostered continued moral growth. Beyond the collegiate experience, the practice of professional accountancy may not foster additional gains in moral reasoning. Ponemon (1990) found that the level of moral reasoning attained by accountants tends to be inversely related to their positions in the firm. He found that partners in CPA firms exhibited lower levels of moral reasoning than seniors, who exhibited the highest levels within the firm. More recently, Shaub (1993) also observed this phenomenon reporting that "auditors at the staff level show some progression in DIT scores, followed by a regression at the senior level continuing through to the partner level" (p. 22).

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IMPACT OF BUSINESS AND ACCOUNTING ETHICS INSTRUCTION Does business and accounting ethics instruction affect students' moral reasoning development? Results of prior studies are mixed. In general, when researchers have used a generic instrument such as the DIT, most have failed to find that intensive classroom exposure to ethics make significant differences in the students' abilities to consider the ethical implications of business decisions (Ponemon, 1993; Shaub, 1993; St Pierre et al., 1990; Jones, 1989). l Using the DIT and a pre-/post-test design, Ponemon (1993) assessed the effectiveness of a 10-week ethics intervention in his auditing classes. His subjects, 73 senior accounting majors and 53 graduate students with nonaccounting undergraduate degrees, failed to exhibit significantly different post-test scores on the DIT. Ponemon advances five alternative reasons for these test results and suggests that it is premature to conclude that ethics interventions are ineffective. Perhaps the most arguable of Ponemon's alternative reasons is that the DIT may be "too crude a measure to capture accounting students' ethical reasoning" (p. 205). He further states that an instrument based on ethical issues framed in the context of accounting or auditing might have provided a more precise measure of the moral development of his sample. Other researchers have also advanced the argument that the DIT, in its attempt to broadly generalize ethics, may not fairly represent professional environments. Their solution has been to develop profession-specific test instruments. These include ethical sensitivity tests for the dental (Newell et al., 1985; Bebeau et al., 1985), counseling (Volker, 1984), nursing (Waithe et al., 1989), and tax (Dennis-Escoffier & Fortin, 1991) professions. Where researchers have developed business and accounting specific test instruments, they note significant improvement in the student's ability to consider the ethical implications of business decisions after ethics intervention (Welton et al., 1994; Hitebeitel & Jones, 1991; Arlow & Ulrich, 1980, 1985). Using a test instrument developed by Clark (1966), Arlow and Ulrich (1980, 1985) reported initial improvement in ethical awareness of business students after the completion of a course that had substantial ethics exposure. However, 4 years later they found that the ethical awareness of the group had declined to pretest levels. Clark's business ethics scale consists of 11 short scenarios designed to evaluate an individual's personal ethical standards. Within a business

ISee Armstrong (1993) for a notable exception. Armstrong develops an ethics intervention that results in improved DIT scores. Failure to employ an equivalent control group is a limitation of her study.

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context, this scale purports to measure an individual's commitment to personal integrity, honesty, and law. Arlow and Ulrich's initial sample consisted of 120 upper-division business majors enrolled in a business and society course. These students were pretested at the beginning of the semester. Course materials emphasized the business-society relationship and social responsibility. The amount of time devoted to business ethics as a separate topic was approximately 1 week. However, other topics discussed throughout the term had ethical implications. At the end of the course, the students were again surveyed to obtain post-test scores. Four years later, Arlow and Ulrich obtained 73 usable follow-up surveys from these same students. In the study, accounting majors exhibited significantly higher scores on the pretest than management and marketing majors. Arlow and Ulrich attributed this finding to the additional training in accounting ethics that accounting majors receive in such courses as auditing. The post-test did not indicate a significant decline in accounting major's scores, while the scores of management and marketing majors increased significantly to the pretest level of the accounting majors. Four years later, Arlow and Ulrich found that both groups had returned to their pretest levels. They conclude that while there may be a short-term effect of teaching business ethics to undergraduate business students, the effect is not persistent. Following this study, Hiltebeitel and Jones (1991) developed their own instrument to test the effects of integrating ethics modules into accounting courses at two universities. Their study involved 171 students in auditing, cost, and accounting principle classes. All students were pretested at the beginning of the semester. Students enrolled in auditing and cost were exposed to ethics modules, while the principles students served as a nonequivalent control group. A minimum of 2 weeks followed the intervention and post-testing. The test instrument consisted of personal and professional dilemmas. For each dilemma, students were asked to rank six considerations for resolving the dilemmas. The six considerations were keyed to Kohlberg's stages. From their analysis, Hiltebeitel and Jones concluded that the accounting students exposed to ethics modules revised the manner in which they resolved professional ethical dilemmas giving more weight to considerations representing Kohlberg's higher stages. However, this effect did not "spill over" to personal ethical dilemmas. More recently, Welton et al. (1994) developed a test instrument patterned after the DIT to test an ethics intervention that included exposure to Kohlberg's theory of moral development, study of professional accounting codes of ethics, and ethics cases. This intervention comprised 34% of the course content and was administered to 26 master of accountancy students. Another 31 master of accountancy students served as a control group. These groups were homogeneous relative to age, gender, and pretest score distributions.

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The test instrument contained four accounting decision scenarios, each of which included a series of statements keyed to Kohlberg's stages of moral development. The first scenario required an evaluation as to whether an unqualified opinion could be issued. The second scenario addressed the extension of credit to executives of a former bankrupt company. The third scenario presented an audit situation concerning contingencies and the adequacy of a bank's loan loss reserve. The final scenario involved the reporting and approving of expense reimbursements. Subjects were asked to identify and weight the four statements they believed were most relevant to each decision. These weightings, and the relationship of the statements to Kohlberg's stages of moral development, were combined across the four scenarios to produce a " P score". This P score represented the subject's propensity to give weight to postconventional considerations in their decision-making. The treatment and control groups were enrolled in different graduate accounting courses. Both groups completed the decision scenarios as a pretest at the beginning of the semester. At the end of the semester, both groups again completed the decision scenarios. The treatment group exhibited a significant gain in mean P score, while the mean P score of the control group did not show a significant decline. From their analysis, Welton et al. concluded that an appropriately designed ethics intervention fosters students' abilities to consistently consider ethical issues in their decision-making processes.

THEORY, HYPOTHESES, AND EXPERIMENTAL DESIGN To date, no studies involving accounting students exist that track the persistence of a successful ethics intervention. As previously discussed, accounting researchers have observed increases in students' abilities to consider ethical issues in their decision making after exposure to appropriately designed ethics interventions (Welton et al., 1994; Armstrong, 1993; Hiltebeitel & Jones, 1991). However, is the effect persistent, or as with general business students does it dissipate (Arlow & Ulrich, 1980, 1985)? This study adopts and extends the methodology of Welton et al. (1994) by using their test instrument to gauge the persistence of an ethics intervention through pre-, post-, and follow-up testing of accounting graduate students. We selected this test instrument because it is accounting specific. This addresses the concerns of Ponemon (1993) and others that, for accounting decision-makers, an accounting-based instrument may provide a better measure of moral development than the DIT. Welton et al. (1994) validated their instrument through independent evaluation and field testing.

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We hypothesize that the ethics intervention will raise the experimental subjects' ethical reasoning ability and that improvement will be exhibited by shifts toward higher ethics test scores. Thus: Hi: Graduate accounting students receiving ethics instruction during the accounting environment course will show more improvement in their " P scores" than other graduate students who do not receive ethics instruction.

We also anticipate that the scores will decline over time, but permanent gains will occur. Thus:
n 2

Follow-up " P scores" of the experimental group will be less than their post-test " P scores". Follow-up " P scores" of the experimental group will be higher than their pretest "P scores".

and

//3:

Subjects
The subjects in our study were the population of graduate accounting students enrolled in an AACSB accredited Master of Accountancy degree program. Those in the experimental group were enrolled in multiple sections of an accounting environment course that were taught by the same instructor. Students assigned to the control group were enrolled in other graduate accounting courses and had taken the environment course. The initial sample consisted of 81 students, 35 in the experimental group and 46 in the control group. Fifteen respondents were lost to attrition or failure to return the follow-up. Another 18 respondents were deleted from the sample because they failed the test instrument's consistency and validity checks. This resulted in 48 respondents at the end of the 6-month follow-up period. Demographic data for the remaining subjects is presented in Table 2.

Table 2. Demographic profile of subjects by group


Experimental Initial subjects Lost through attrition Failed consistency and validity checks Remaining subjects Mean age of remaining subjects Standard deviation of age Gender: Female Male 35 (4) (8) 23 31.0 years 9.9 years 48% 52% Control 46 (11) (10) 25 27.4 years 6.5 years 72% 28% Total
81

(15) (18) 48

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Course and Ethics Intervention The accounting environment course focused on three areas: (1) the politics involved in setting accounting standards, (2) professional ethics, and (3) the legal responsibilities of the profession. The unit on professional ethics included exposure to Kohlberg's theory of moral development, study of professional codes of ethics (e.g., AICPA, IIA and IMA codes, as well as practice standards for the tax and management advisory services), and extensive use of written and video ethics cases. The ethics intervention comprised the middle third of the course. This unit was taught in seminar format with the class comparing and contrasting an ethical concept, such as objectivity across all the professional codes, and then seeking to apply the concept through case analysis. Case discussion always focused on five points: (1) identification of the stakeholders, (2) identification of the ethical issues and concepts of the case, (3) alternatives, (4) analysis of the likely impact of each alternative, and (5) a recommended solution. Little attention was focused on the recommended solution. Rather, students were encouraged to focus on the stakeholders, and the likely impact, including constraints of the identified alternatives. This focus almost always led to the identification of a direct or indirect public responsibility. Even in the areas of corporate accounting, management advisory services, and tax practice, indirect public responsibilities can be found. Whether in the public's ultimate reliance on the published financial statements, a product of management, or in the tax practitioner's responsibility to the tax system as well as the client, these responsibilities exist. Students were encouraged to identify these responsibilities and consider them along with the case constraints as they assessed the likely impact of the alternatives.

Test Instrument and Methodology The test instrument used (Welton et al., 1994) is patterned after Rest's DIT with situations and issues designed to elicit and identify the subjects' stages of ethical reasoning in the context of accounting decision making. As with the DIT, the weighted measure of stage 5 and 6 responses, expressed as a percentage of the maximum score, represents the relative importance a subject gives to more principled (postconventional) considerations in making decisions involving ethical dilemmas, and is termed the " P " score. This " P " score should not be misinterpreted to be the same as the DIT P score. While the scoring procedures are the same, the respondents' reference base is their business ethic which may be different from their general moral ethic. To avoid the possibility that exposure to the test instrument might

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create unintended treatment effects, an equivalent control group was incorporated into the experimental design. The resulting experimental design provided for a pre- and post-test of the actual treatment period (one semester) with a delayed follow-up of both an experimental and a control group. Comparisons of pre- and post-test treatment scores provided evidence of the effectiveness of the ethics intervention. Followup testing examined the persistence of the intervention. A paired t-tests design was used.

R E S U L T S A N D ANALYSIS The pre-, post-, and follow-up test results are presented in Table 3. 2 The pretest mean scores of the experimental and control group were 27.5 and 31.3; these scores were not significantly different (t-test probability of .28). This supports the assumption of equality of initial moral reasoning level between the experimental and control groups. Another factor in establishing equivalence of the two groups with respect to moral reasoning is maturity. The mean age of the experimental and control groups were 31.0 and 27.4, respectively; their ages were not significantly different (t-test probability of .16). Additionally, each group's pretest scores were tested for gender differences. No significant gender differences were found. The experimental group showed a mean improvement in P score of 7.4 (to 34.9). Thus, there was a significant difference (one-tailed, paired t-test probability of .022) between the pre- and post-test. At the same time the control group score declined .3, which was not a significant change (one-

T a b l e 3. Test r e s u l t s Pretest P score means Experimental group Control group Standard error of P score means Experimental group Control group P score standard deviation Experimental group Control group Post-test Follow-up

27.5 31.3 2.5 2.4 12.2 11.8

34.9 31.0 3.0 2.9 14.4 14.4

31.3 29.4 3.7 2.4 18.0 12.0

2Paired t-test results were consistent with analysis of variance and analysis of covariance tests results.

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tailed, paired t-test probability of .93). These results support the hypothesized effects of ethical instruction, H1. Thus, the results of this study support previous findings (Welton et al., 1994; Armstrong, 1993; Hiltebeitel & Jones, 1991) that ethics interventions can significantly improve the moral reasoning ability of accounting students. The follow-up test P score mean for the experimental group was 31.3, a decrease of 3.6 over a 6-month period. The follow-up test P score mean for the control group was 29.4, a decrease of 1.6 over the same period. These scores are neither significantly lower than the mean post-test score, nor significantly higher than the mean pretest score. Thus, //2 and H3 cannot be supported. However, the movement of the changes in the P scores of the experimental group for both hypotheses (//2 from 34.9 to 31.3; /-/3 from 27.5 to 31.3) were in the predicted direction. By analyzing the components of the experimental group's P scores (stage 5 and 6 scores), we observed that most of the movement in average P scores across the three tests involved stage 6, the highest level. Since the test scores for all stages total 100, P score changes will be inversely reflected by changes in the other stage scores. For the experimental group, from pre- to post-test to follow-up, the stage 6 scores rose then lost half of the gain, while the lower stage scores declined and then returned to their previous levels. The experimental group exhibited no statistically significant movement in stage 5 scores from pretest through follow-up testing. These stage score results are presented in Table 4. Thus, the post-test/follow-up test results suggest that the effects of ethics intervention may be transitory. The observed trends are consistent with the findings of Arlow and Ulrich (1980, 1985). However, additional research needs to be conducted to statistically establish the persistence or transitory nature of ethics interventions. LIMITATIONS

This study's results are subject to several limitations, including small sample size which impacts significance tests, the use of a single university, and potential self-selection effects. Maturity of the subjects and gender mix of the groups may also be a limiting factor. While the mean age of the treatment and control groups was 31.0 and 27.4 years, respectively, many of the subjects were still in their early 20s as evidenced by respective standard deviations of 9.9 and 6.5 years. Based on prior research findings (Kohlberg, 1984), these subjects may still be "finding" their level of ethical reasoning. The test instrument is also subject to limitation. While Welton et al. (1994) tested the instrument to insure its validity (pp. 38-41), the correspondence of the scenario statements to Kohlberg's stages rests on their ability to accurately correlate the statements and the stages. The

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Table 4. Stage 5, stage 6 and Pscore results


Mean scores and t-test probabilities

Pretest/Post-testComparison
Group mean scores Experimental Stage 5 Stage 6 P score Control Stage 5 Stage 6 P score Probability of P score equality between groups

Pretest
19.1 8.4 27.5 23.3 8.0 31.3 .28

Probability Post-test Change change=O


20.2 14.7 34.9 25.0 6.0 31.0 .35 1.1 6.3 7.4 1.7 -2.0 -.3 .09 .70 .01 .02 .54 .53 .92

Post-test/follow-upcomparison
Group mean scores Experimental Stage 5 Stage 6 P score Control Stage 5 Stage 6 P score Probability of P score equality between groups

Probability Post-testFollow-up Change change=O


20.2 14.7 34.9 25.0 6.0 31.0 .35 20.4 10.9 31.3 23.7 5.7 29.4 .67 .2 --3.8 -3.6 -1.3 -0.3 --1.6 .67 .95 .09 .36 .64 .86 .57

Pretest/follow-upcomparison
Group mean scores Experimental Stage 5 Stage 6 P score Control Stage 5 Stage 6 P score Probability of P score equality between groups

Probability Pretest Follow-up Change change=O


19.1 8.4 27.5 23.3 8.0 31.3 .28 20.4 10.9 31.3 23.7 5.7 29.4 .67 1.3 2.5 3.8 .4 -2.3 --1.9 .29 .88 .16 .41 .75 .23 .52

instrument m a y also be insensitive to respondents capable of reasoning at higher levels. An individual who has developed the ability to reason at a postconventional stage will not always advocate a solution consistent with that stage. All lower stage alternatives are inputs to that individual's decision process. Additionally, the instrument measures the tendency toward more ethical reasoning which may not predict behavior.

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R.M. LaGrone et al. IMPLICATIONS AND CONCLUSION

Consistent with the results of prior studies (Armstrong, 1993; Hiltebeitel & Jones, 1991), this study provides evidence that appropriately framed ethics interventions may significantly improve the ethical reasoning ability o f accounting students. More significantly, this study represents the first attempt to measure the persistence of a successful ethics intervention on accounting students' abilities to consistently consider ethical issues in their decision-making processes. While the experimental group's average P score returned to pretest levels within 6 months of the ethics intervention, slight shifts toward more principled reasoning persisted. This was evidenced by diminished, but persistent, increases in the experimental groups' stage 6 scores from the pretest to the 6-month follow-up test. If further research statistically establishes a transitory nature of ethics intervention, this will have important implications for the accounting profession as it reevaluates collegiate curricula and develops continuing education requirements and programs. AICPA and IIA standards call professionals to assume an "obligation to self-discipline above and beyond the requirements of laws and regulations" (AICPA, 1994; ET 51.01; IIA, 1988), a postconventional orientation. However, the majority of training for, and practice of, accountancy is grounded in a conventional (rule-book) o r i e n t a t i o n - GAAP, GAAS, Internal Revenue Code & Regulations, or "presents fairly, in conformity with generally accepted accounting principles". Both Ponemon (1990) and Shaub (1993) have observed that the level of moral reasoning attained by accountants tends to be inversely related to position in the firm. The greater an individual's decision-making authority and experience, the more likely the individual will approach decision making from a rule-book orientation. The following is an excerpt of a South Carolina Board of Accountancy editorial expressing that board's frustration over an excessive rules-oriented decision approach. Day after day the Board's Director and staff listen to constant petty bickering, complaining, and griping between accountants versus clients, accountants versus board staff, accountants versus each other, accountants versus competitors, and on and on. What has gone wrong? Where is the professionalism? Have we become so caught up in the whirlwind of daily activity that we have forgotten our duties and responsibilities as professionals? Are we so eager to earn another dollar that we overlook our professional responsibilities ... When was the last time anyone read the AICPA Principles of Professional Conduct? According to the preamble, principles of professional conduct call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. Those who rely on CPAs expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public . . . .

Effects of Accounting Ethics Interventions The public's trust in the accounting profession must be preserved at all cost. If the public trust is lost there is nothing to sell and the profession will become just another trade or occupation . . . . All of us must keep in mind the principles of professional conduct when applying the rules and interpretations and not become so caught up in narrow interpretations and rulings that we overlook the overriding principles (South Carolina Board of Accountancy, 1993, p. 1).

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As legal cases bear out, this rule-book approach is society's minimum expectation for the practicing accounting professional. Bebeau et al. (1985) note that a postconventional orientation to moral reasoning seems consistent with our society's concept of being a professional. Can future professionals be taught to consistently consider the higher stages of ethical reasoning in their business decision-making processes? Research results show that they can, but that the effect may not be persistent. Given this reservation, and the evidence that the practice of professional accountancy may not foster additional gains in moral reasoning, perhaps it is time to call for m a n d a t o r y continuing professional education in ethics. Since the effects of ethics interventions diminish over time, accountants might attain their highest state of ethical awareness if ethics issues are made a part of their continuing education programs. M a n y state boards require a certain amount of continuing education to be completed in specific practice areas on an annual or biannual basis. Why not ethics? The point of these requirements is to help professionals to maintain and enhance their competence. Ethics continuing education must be more than just "doing the time". Unless the ethics intervention is appropriately designed, it may not be effective. Therein lies an opportunity and challenge for accounting educators.

REFERENCES Accounting Education Change Commission. (1990). Objectives of education for accountants: position statement number one. Issues in Accounting Education, 5, 307-312. American Assembly of Collegiate Schools of Business [AACSB]. (1988). Accreditation council policies, procedures and standards. St Louis: AACSB. American Institute of Certified Public Accountants [AICPA]. (1988). Education requirements for entry into the accounting profession. New York: AICPA. American Institute of Certified Public Accountants [AICPA]. (1994). Professional standards (Vol. 2). New York: AICPA. Arlow, P. & Ulrich, T. A. (1980). Business ethics, social responsibility and business students: an empirical comparison of Clark's study. Akron Business and Economic Review, 11, 1722. Arlow, P. & Ulrich, T. A. (1985). Business ethics and business school graduates: a longitudinal study. Akron Business and Economic Review, 16, 13-17.

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Armstrong, M. B. (1987). Moral development and accounting education. Journal of Accounting Education, 5, 27-43. Armstrong, M. B. (1993). Ethics and professionalism in accounting education: a sample course. Journal of Accounting Education, 11, 77-92. Bebeau, M. J., Rest, J. R., & Yamoor, C. M. (1985). Measuring dental students' ethical sensitivity. Journal of Dental Education, 49, 225-235. Center for the Study of Ethical Development. (1990). Guide for the defining issues test. Minneapolis: University of Minnesota Press. Clark, J. W. (1966). Religion and the moral standards of american businessmen. Cincinnati: South-Western Publishing Company. Dennis-Escoffier, S. & Fortin, K. A. (1991). Testing moral development in the tax curriculum. Collected papers of the 43rd annual meeting of the Southeast Region American Accounting Association (pp. 208-211). Birmingham, Alabama. Hiltebeitel, K. M. & Jones, S. K. (1991). Initial evidence on the impact of integrating ethics into accounting education. Issues in Accounting Education, 6, 262-275. Institute of Internal Auditors [IIA]. (1988). Code of ethics. Altamonte Springs, Florida: IIA. Jones, T. M. (1989). Can business ethics be taught? Empirical evidence. Business and Professional Ethics Journal, 8, 73-94. Kohlberg, L. (1984). The psychology of moral development. New York: Harper & Row. Loeb, S. E. (1991). The evaluation of "outcomes" of accounting ethics education. Journal of Business Ethics, 10, 77-84. National Commission on Fraudulent Financial Reporting (Treadway Commission). (1987). Report of the National Commission on Fraudulent Financial Reporting. Washington, DC: National Commission on Fraudulent Financial Reporting. Newell, K. J., Young, L. J., & Yamoor, C. M. (1985). Moral reasoning in dental hygiene students. Journal of Dental Education, 49, 79-84. Ponemon, L. A. (1990). Ethical judgments in accounting: a cognitive-development perspective. Critical Perspectives in Accounting, 1, 191-215. Ponemon, L. A. (1993). Can ethics be taught in accounting? Journal of Accounting Education, 11, 185-209. Rest, J. E. (1979). Development in judging moral issues. Minneapolis: University of Minnesota Press. Shaub, M. (1993). An analysis of the association of traditional demographic variables with the moral reasoning of auditing students and auditors. Journal of Accounting Education, 12, 1-26. South Carolina Board of Accountancy. (1993). Newsletter (March), 1. St Pierre, K., Nelson, E., & Gabbin, A. (1990). A study of the ethical development of accounting majors in relation to other business and nonbusiness disciplines. The Accounting Educators' Journal, 23-35. Volker, J. M. (1984). Counseling experience, moral judgment, awareness of consequences, and moral sensitivity in counseling practice. Unpublished doctoral dissertation, University of Minnesota. Waithe, M. E., Duckett, L., Schmitz, K., Crisham, P., & Ryden, M. (1989). Developing case situations for ethics education in nursing. Journal of Nursing Education, 28, 175-180. Weber, J. (1990). Measuring the impact of teaching ethics to future managers: a review, assessment, and recommendations. Journal of Business Ethics, 9, 193-190. Welton, R. E., LaGrone, R. M., & Davis, J. R. (1994). Promoting the moral development of accounting graduate students: an instructional design and assessment. Accounting Education, 3, 35-50.

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APPENDIX TEST INSTRUMENT

Opinions about accounting and business decisions


The purpose of this questionnaire is to help us understand how individuals think about accounting and business decisions. Different individuals have different opinions about the importance of particular factors in decision-making. There are no "right" answers to such decisions in the way that math problems have a single correct solution. We would like you to tell us what you think about several scenarios.
For each of the following four scenarios we will ask you to do the following: (I) Carefully read the scenario. (2) Place a check mark in the space provided, to answer the question posed by the scenario. (3) Indicate the importance of each item numbered 1-12 to your decision in the scenario by placing a check mark in the provided spaces. For example, if you believe statement 1 is of prime importance to your decision check "great". If statement 1 would not influence your decision check "no". For each scenario, you may have multiple items which are of "great", "much", "some", "little", or "no" importance to your decision. (4) Indicate the four most important items and their relative order of importance to your decision by placing their item numbers in the blanks labeled "most important", "second most important", "third most important", and '"fourth most important".

The opinion
Susan Bonnet, CPA, served as the partner-in-charge of the consulting team that installed the computerized accounting system for Midwest Sales, a publicly held company. Midwest has been a client of her national CPA firm for 15 years. During this period, Midwest has experienced rapid growth, and is now planning a $15 million stock offering. Keith Pasket, an audit partner, is nearing completion of the procedures in the audit program for Midwest. Although the audit has found no discrepancies in the accounting data and financial reports, several critical weaknesses were noted in the internal control structure of the computerized accounting system. Mr Pasket does not want to give an unqualified opinion unless the audit scope is expanded. Ms Bonnet, who has devoted many hours to the development of the computerized accounting system, is very defensive of the system and assures Mr Pasket that everything is under control. The client is in agreement with Ms Bonnet and is unwilling to pay for an expanded audit.
Should Pasket give an unqualified opinion?

Should give Importance Great Much Some Little No

Can't decide

Should not give

(1) Any problems are the fault of the CPA firm and the financial report of Midwest should in no way be jeopardized. (2) Whether expansion of scope is the only alternative under GAAS. (3) Midwest's goals should be placed ahead of differences concerning the type of audit opinion.

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(4) Whether Mr Pasket is biased because the work was competed by Ms Bonnet. (5) Whether Pasket knows about the anticipated stock offering. (6) Whether Midwest will be treated the same as other clients in similar situations. (7) Whether internal control conerus can be solved solely with a management letter. (8) Whether rendering an unqualified opinion will conflict with Pasket's personal sense of integrity. (9) Whether consulting revenues are dominant within the CPA firm. ( 1 0 ) H o w would the stockbrockers' interestbe best served? ( 1 1 ) Whether performing criticalaccounting activitieson the computer versus manually violates G A A P . ( 1 2 ) Whether the C P A firm's obligation to the client conflictswith their obligation to the shareholders. the list of questions above, select the Most important Second most important
four most

From

important:

Third most important Fourth most important

Bankruptcy
Fun Bicycle, a recently formed company, has approached Atop Metals, a company with $8 million in sales, for a line of credit for the purpose of supplying tube steel for the manufacture of bicycles. The three owners of Fun were the former owners of Kiddie Tricycle, a company that declared bankruptcy 3 years ago. Atop Metals had to write-off $280,000 of bad debts because of Kiddie's bankruptcy. The three owners of Fun have experiences and backgrounds in engineering, marketing, and accounting. The new company has sufficient expertise to manufacture and sell bicycles. They expect first year tube steel needs to be approximately $800,000, and therefore have asked for line of credit totalling $400,000. Should Atop extend credit Should extend Importance Great M u c h Some Little N o (1) You should do favors for former customers, even if they previously have had economic difficulties. (2) Whether Fun's risk of default is assessed as being within acceptable lending limits. (3) Whether Atop gets a tax break when it writes off bad debts. (4) Whether the owners of Atop and Fun are related. (5) Society should protect companies from bankruptcy if their owners and managers are trying hard to succeed. (6) Whether Fun is treated the same as other credit customers.
to Fun

Bicycles? Can't decide Should not extend

Effects of Accounting Ethics Interventions

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(7) Whether the law forbids discrimination in credit decisions of individuals who have previously declared bankruptcy. (8) Whether Atop is extending credit for selfish reasons (to make a profit) or is attempting to help a new business get started. (9) Whether Fun's owners were guilty of fraud in the bankruptcy of Kiddie Tricycle. (10) Whether extending this credit violates company policy of extending credit to officers of bankrupt companies. (I 1) Whether other tube steel suppliers have already rejected Fun's request for credit. (12) Whether extending credit to Fun will allow them to create needed jobs in the community.
From the list of questions above, select the four most important:

Most important Second most important

Third most important Fourth most important

The bank audit

Jones & Co., CPAs, are conducting an audit of 1st Bank and Trust, a client of 15 years. The operations of 1st Bank are in two locations, but preparation for expansion into a third market through a public stock offering is underway. One of the two existing markets is a growing town which supports a neighboring military base. Under the pressure of reduced federal funding, the Pentagon has placed this base on a list of potential closings. Over the years, 1st Bank has invested heavily in this community. Loans to businesses in this community comprise three-fifths of its business loan portfolio. If the base is closed, losses will be substantial. Publicly, the Congressional delegation is expressing confidence that they will win the fight to keep the base open. 1st Bank's directors want Jones to adopt a wait and see approach..
Should Jones insist that 1st Bank significantly increase its loan loss reserve?

Should increase Importance Great Much Some Little No

Can't decide

Should not increase

(1) Whether Jones has increased legal exposure in this situation. (2) Whether the Pentagon is being short-sighted in targeting this base for closing. (3) What does GAAP require in this situation? (4) Whether the write-down will jeopardize 1st Bank's anticipated stock offering. (5) Whether 1st Bank meets the legal loan loss reserve requirement. (6) Whether failure to disclose this situation would conflict with the auditor's personal concept of honesty. (7) Whether Jones's obligation to the client conflicts with their obligation to the shareholders in this instance. (8) Does a majority of society believe auditors should scrutinize banks more closely than other organizations?

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(9) Whether the will of the people is exercised through Congress. (10) Whether 1st Bank will look for another auditor if Jones insists on a write-down. (11) Whether financial statement users believe contingency disclosures are useful. (12) Whether Jones has previously been involved in disputes with 1st Bank over the size of the loan loss reserve. From the list of questions above, select the four most important: Most important Second most important Third most important Fourth most important

Reimbursement Joe, an employee, attends an out-of-town convention. Only the travel and accommodation expenses of employees are to be reimbursed upon the approval of documentation submitted to Terry. Joe's spouse accompanied him and they stayed an additional night resulting in substantial reductions in air fares. Joe has submitted the total travel and accommodation bills without reduction for spouse related expenses. Should Terry approve the reimbursement? Should approve Importance Great Much Some Little No (1) Whether Terry knows that Joe is doing an excellent job. (2) Whether company policy is going to be followed. (3) Whether future reviews are likely to question Terry's approval of this item. (4) Whether Terry's certification code of ethics gives guidance on this item. (5) How would the stockholders' interests be best served? (6) Would it be fair to other employees who choose to travel without their spouses? (7) Whether this type of request is approved in other units of the firm. (8) Whether the inconvenience of out-of-town travel allows one to compensate via special perquisites. (9) Whether Joe is a close friend of Terry. (10) Whether an in-house training session stressed this issue as one to be given careful review. (11) Whether this decision creates conflicts with Terry's concept of honesty. (12) Whether society is proactive in establishing codes of ethics. From the list of questions above, select the four most important: Third most important Most important Second most important Fourth most important Can't decide Should not approve