Sie sind auf Seite 1von 420

ORGANIZATIONAL LEADERSHIP AND ETHICAL CLIMATE IN

UTAH’S CERTIFIED PUBLIC ACCOUNTING PROFESSION

by

Jeffrey Nowell Barnes

UNIVERSITY OF PHOENIX

February 2013

UMI Number: 3569138

All rights reserved

INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted.

In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion.

had to be removed, a note will indicate the deletion. UMI 3569138 Published by ProQuest LLC

UMI 3569138

Published by ProQuest LLC (2013). Copyright in the Dissertation held by the Author.

Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code

unauthorized copying under Title 17, United States Code ProQuest LLC. 789 East Eisenhower Parkway P.O. Box

ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, MI 48106 - 1346

ii

© February 2013 by Jeffrey Nowell Barnes ALL RIGHTS RESERVED

iv

Abstract

The purpose of this quantitative study, with a correlation design, was to describe and

quantify the relationships between accounting subordinates’ perception of their focal

leader’s full-range leadership theory (FRLT) style, ethical climate type perceptions and

whether understanding of the Federal Sentencing Guidelines for Organizations and

personal religiosity bear on the subject. Statistically significant correlative relationships

existed, with ps < .005, between transformational leadership and four of the five

empirically derived ethical climate type perceptions (i.e., caring, r = .411; lawcode, r =

.282; rules, r = .402; and instrumental, r = -.525). No statistically significant correlative

relationships existed between transactional leadership and all five ethical climate type

perceptions. Laissez-faire leadership exhibited statistically significant correlative

relationships, with ps < .016, for a weak negative correlation with the rules ethical

climate type perception (i.e., r = -.237) and a positive correlation with the instrumental

ethical climate type perception (i.e., r = .247). Respondents’ with SEC clients and

understanding the Federal Sentencing Guidelines for Organizations’ (FSGO)

recommendations had a statistically significant correlative relationship, at the p = .048

and a slightly negative correlative relationship with instrumental ethical climate type

perception (i.e., r = -.284). There were no statistically significant correlative

relationships between personal religiosity and any leadership style and ethical climate

type perception. Lastly, because of sub-sample size constraints, cross-sectional analysis

was limited. However, using SPSS univariate analysis of variance with two independent

variables, leadership style and a demographic category, all leadership styles manifested

varying correlative relationships with one or more varieties of the ethical climate type

v

perceptions, dependent upon respondents’ gender, primary work function, CPA licensure,

firm size, and length of service with the current CPA firm.

vi

Dedication

I dedicate this dissertation to those who encouraged and supported me throughout

my long journey. First, to my beautiful and equally capable wife, Jocelyn J. Barnes, who

said, “Jeff, follow your dreams!Second to my children, Justin, Jared, Jaelyn, and

Jerika, for their constant hopefulness and who believed that, an old dog could learn new

tricks.And last, to my mother, Mary L. Cannon, who prayed for my success and upon

my completion said, “Jeff, I am so proud of you,” which statement still makes her son

smile. I know God answers prayers!

vii

Acknowledgements

My gratitude extends to so many who deserve acknowledgement. Most deserving

and to whom I give my sincerest thanks, is my patient, helpful and loyal Committee

Chair, Yohannes Mariam, Ph.D., of Canada’s McGill University. Also, my sincerest

thanks go to my committee members David Christensen, Ph.D., of the University of

Nebraska at Lincoln, and to Frank Bearden, Ph.D., of the Our Lady of the Lake

University, who were always supportive with substantive and timely recommendations.

Next, I would like to thank my Dean, Carl Templin, of Southern Utah University’s

School of Business, who encouraged me during a graduate student recruiting trip to

eastern Utah, saying, “Jeff, you should pursue a doctorate!” Also, I would like to thank

all my wonderful, capable, and competent doctoral professors of the University of

Phoenix’s School of Advanced Studies who, during courses and annual residencies, made

this journey substantive, demanding, and enlightening. Last, I would like to thank the

many kind colleagues, of the doctoral research community, who were so willing to assist

when help was needed; they set the example of how this doctor will “pay forward” and

assist others in need.

viii

Table of Contents

List of Tables

xix

List of Tables in Appendices

xxii

List of Figures

xxiv

List of Figures in Appendices

xxv

List of Equations

xxvii

Chapter 1: Introduction

1

Background of the Problem

2

Sociological Foundation and Leadership Relationships

3

Psychological Foundation and Leadership Effect

4

Ethics, Moral Development, and Spirituality’s Correlation to Behavior

5

Spirituality and Religiosity

7

Continued Fraudulent Financial Reporting

8

Statement of the Problem

9

Purpose of the Study

10

Significance of the Problem

12

Significance of the Study to Policies and Practices of Public Accounting

13

Significance of the Study to Leadership in Accounting

13

Nature of the Study

15

Overview of the Design Appropriateness

16

Research Questions

17

Quantitative Hypotheses

18

ix

First alternate hypothesis

18

Second null hypothesis

18

Second

alternate hypothesis

18

Third null hypothesis

19

Third alternate hypothesis

19

Fourth null hypothesis

19

Fourth alternate hypothesis

19

Fifth null hypothesis

19

Fifth alternate hypothesis

19

Theoretical Framework and Rationale for Proposed Hypotheses

20

Leadership

22

Ethical Climate

22

External Regulatory Forces

23

Religiosity

24

Definitions of Terms

25

Assumptions

27

Scope and Limitations

27

Limits to Interpretations

29

Generalizability

29

Summary

30

Chapter 2: Review of the Literature

31

Documentation

31

x

Maximizing Self-Interest

36

Egoism, Description and Analysis

36

Accounting Ethics Related Example, Egoism

37

Criticisms of the Egoism Theory for Accounting

38

Maximizing Joint-Interests

39

Utilitarianism, Description and Analysis

40

Accounting ethics related examples,

41

Criticisms of the utilitarian theory for

42

Corporate Social Responsibility, Description and Analysis

43

Accounting ethics related examples, corporate social

45

Criticisms of the corporate social responsibility theory for

45

Standing on Moral Principles

47

Deontology, Description and Analysis

47

Accounting ethics related examples, deontology

48

Criticisms of the deontology theory for

48

Justice and Rights, Description and Analysis

49

Accounting ethics related examples, justice and

50

Criticisms of the rights-and-justice theory for

51

Virtue Ethics, Description and Analysis

51

Accounting ethics related examples, virtue

52

Criticisms of the virtue ethics theory for accounting

54

Descriptive Ethics, Description and Analysis

54

xi

Criticisms of the descriptive ethics theory for accounting

59

Ethics Philosophies and Linkage to Effective Leadership

61

Leadership

63

Leadership Styles

65

Full-Range Leadership Theory

66

Transactional versus Transformational Leadership Styles

66

Leadership Style is Necessarily Flexible

68

Leadership and Subordinate Socialization

69

Leadership and Its Linkage to Ethical Climate

71

Ethical Climate Theory

72

Organizational Support for Ethical Climate

73

The Organizational Environment and Ethical Climate

74

Caring

77

77

78

78

79

Ethical Climate Summary

79

Leadership Styles in the Public Accounting Profession

80

Ethical Climate Research and the Public Accounting Profession

82

External Control FactorsRegulations

83

Federal Sentencing Guidelines for Organizations

83

xii

Religiosity in the Workplace

88

Conclusion

91

Summary

92

Chapter 3: Method

94

Research Method and Design Appropriateness

95

Research Design to Study’s Theoretical Concept

96

Cross-sectional Analysis Opportunities

97

Theoretical Model Design

98

Discussion of Proposed Variables

100

Leadership Independent Variables

100

Ethical Climates’ Dependent Variables

100

The Study’s Moderating or Intervening Variables

101

Justification for Quantitative Method, With Correlation Design

101

Population

103

Target Population

103

Sampling Frame

104

Sample Size

105

Informed Consent

108

Confidentiality

109

Geographic Location

110

Data Collection

111

Survey Response Data Handling Procedures

112

xiii

Coding

114

Grouping

114

Pilot Study

115

Rationale for Development of FGSO and REL Surveys

115

Pilot Sample Survey Validity and Reliability

116

Pilot Sample Testing Methodology

117

Pilot Sample’s Survey Corrections

118

Instrumentation

119

Multifactor Leadership Questionnaire (MLQ)

120

Ethical Climate Questionnaire (ECQ)

121

Federal Sentencing Guidelines for Organizations Questionnaire (FSGO)

123

Religiosity Questionnaire (REL)

124

Validity and Reliability

125

Internal Validity of Survey Instruments

126

127

Selection

128

Large-scale events

128

Maturity of

129

Experimenter

129

External Validity of MLQ and ECQ Instruments

130

Validity and Reliability of MLQ

130

Company use

131

xiv

Validity and Reliability of ECQ

132

Licensing of Instruments

133

Data Analysis

133

Descriptive Statistics

134

Nominal data

134

Ordinal data

135

Researcher Error with ECQ Survey Instrument

136

Correlation Analysis

139

ANOVA Analysis

140

Univariate Analysis of Variance between Demographic Categories

141

Summary

143

Chapter 4: Results

145

Sample Demographic Descriptive Statistics

146

Age of Sample Respondents

146

Gender of Sample Respondents

148

Highest Education Earned by Sample Respondents

150

Primary Language Spoken of Sample Respondents

152

Race of Sample Respondents

152

Marital Status of Sample Respondents

153

Length of Time with Current Firm of Sample Respondents

154

Primary Work Function of Sample Respondents

155

CPA Licensure Status of Sample Respondents

155

xv

CPA Firm Size of Sample Respondents

157

Summary of Sample Demographic Descriptive Statistics

158

Research Questions

158

Quantitative Hypotheses

159

Research Study

160

Findings

160

Assumptions Regarding Models Used

160

Normality of Distributions

163

Homoscedasticity

166

Hypothesis 1—Transformational Leadership’s Relationships to Ethical Climate

167

Analysis of Hypothesis 1

170

Hypothesis 2—Transactional Leadership’s Relationships to Ethical Climate

171

Analysis of Hypothesis 2

172

Hypothesis 3Laissez-faire Leadership’s Relationships to Ethical Climate

172

Analysis of Hypothesis 3

173

Hypothesis 4Regulatory Relationships to Leadership and Ethical Climate

175

Analysis of Hypothesis 4

177

Hypothesis 5—Religiosity’s Relationships to Leadership and Ethical Climate

177

Analysis of Hypothesis 5

178

Limited Leadership Cross-sectional Statistical Analysis

179

Transformational Relationship to Caring by Gender

180

Transformational Relationship to Lawcode and Rules by Service

182

xvi

 

184

Transformational Relationship to Rules by CPA Licensure

186

Transformational Relationship to Lawcode by Firm Size

188

Transactional Relationship to Instrumental by Firm Size

190

Laissez-faire Relationship to Lawcode by Length of Service

192

Post Hoc Power and Effect Size Analysis

194

Summary of Findings

197

Conclusion

201

Chapter 5: Conclusions and Recommendations

203

The Purpose of the Study

203

Description and Interpretation of the Study Results

204

Research Question 1

204

Transformational Leadership

205

Transformational Relationship to Caring Ethical Climate

206

Transformational leadership and gender

207

Transformational Relationship to the Lawcode Ethical Climate

212

Transformational Relationship to the Rules Ethical Climate

214

Transformational Relationship to the Instrumental Ethical Climate

216

Transformational Relationship to the Independence Ethical Climate

218

Transactional Leadership

219

Transactional Leadership Relationship to All Ethical Climate Perceptions

220

Accounting Engagement Activities Encourage Transactional Leadership

222

xvii

Changing the leadership

225

Laissez-faire Leadership

225

Laissez-faire Leadership Relationship to All Ethical Climate Perceptions

227

Summary of Leadership Style Relationships on Ethical Climate Perception

228

Research Question 2

230

Regulatory Relationships to Ethical Climate Perceptions and Leadership

230

Why Does Regulation Have So Few Correlations?

232

Research Question 3

233

Religiosity’s Relationship to Ethical Climate Perceptions and Leadership

233

Why Are Religiosity Correlations Insignificant, Ceiling Effect?

235

Limitations, Improvements, and Implications for Future Research

237

Sample Representation and Sample Size

237

Survey Analysis of Sample

Bias

238

Statistical Inferences and Theoretical Construct Development

239

Religiosity construct development

239

Inadequacy of the Transactional Leadership for Ethical Climate Awareness .240

Implications for Future Research Opportunities

240

Conclusions

241

Transformational Leadership to Ethical Climate Perceptions

241

Transactional Leadership to Ethical Climate Perceptions

244

Laissez-faire Leadership to Ethical Climate Perceptions

244

Regulatory and Religiosity to Leadership and Ethical Climate Perceptions

245

xviii

Appendices

277

Appendix A: SOX Related to Ethical Climate

278

Appendix B: MLQ Subscales, Questions, and Definitions

282

Appendix C: ECQ Scales, Questions, and Definitions

292

Appendix D: Reliability Recommendations for MLQ Administration

297

Appendix E: Letter of Introduction to Target CPA Firms

301

Appendix F: Form for Permission to Contact Organization’s Membership

303

Appendix G: Introductory Letter to Survey Participant

305

Appendix H: Confidentiality Agreements

310

Appendix I: List of Utah CPA Firms Providing Permission

316

Appendix J: Permission to Use Surveys

330

Appendix K: Multifactor Leadership Questionnaire (MLQ) Sample Questions

333

Appendix L: Ethical Climate Questionnaire (ECQ)

335

Appendix M: Federal Sentencing Guidelines for Organizations Questionnaire (FSGO)340

Appendix

N:

Religiosity Questionnaire (REL)

344

Appendix O: Survey Demographic Information Questionnaire

347

Appendix P: Data Coding

350

Appendix Q: Creating Survey Scales

355

Appendix R: Process to Obtain CPA Firm Permissions

359

Appendix S: Electronic Survey’s Format

361

Appendix T: Electronic Survey Structure Logic

372

Appendix U: Distribution Histograms of Study Variables

374

xix

Appendix W: Regulatory Correlations

387

Appendix X: Religiosity Correlations

389

Appendix Y: Post Hoc Power Table

391

 

List of Tables

Table 1 Number of Scholarly References Used in This Study

………………………

33

Table 2 Kohlberg’s Moral Development Stages, Orientations, and Definitions ………. 56

Table 3 Leadership Definitions ………………………………………………………… 63

Table 4 Nine Theoretical Ethical Climate Types ………………………………………. 75

Table 5 Five Common Empirical Derivatives of Ethical Climate Theory ……………

76

Table 6 Leadership Styles in Public Accounting ………………………………………. 81

Table 7 1991 Federal Sentencing Guidelines for Organizations (FSGO) ……………

85

Table 8 FSGO Amendments Requiring Organizational Ethical Culture……………

86

Table 9 Survey Changes from Pilot Sample Recommendations ……………………… 119

Table 10 Intercorrelations and Reliability of Scale Scores

………………………

132

Table 11 Licensing Requirements of Survey Instruments ……………………………

133

Table 12 Proper Ethical Climate Questionnaire Scale and Scale Used in This Study

137

Table 13 Intercorrelations and Reliability of ECQ Scale Scores with Balanced Scale. 138

Table 14 Intercorrelations and Reliability of ECQ Scale Scores with Unbalanced Scale

…………………………………………………………………………………….…

138

Table 15 Guilford Interpretation of the Magnitude of Significant Correlations

140

Table 16 Hypotheses, Statistical Analyses, Possible Relationships, and Tests ……

142

Table 17 Age of Sample Respondents ………………………………………………… 147

xx

Table 19 Highest Education Earned of Sample Respondents ……

………………….

150

Table 20 Race of the Sample Respondents …………………………………………… 152

Table 21 Marital Status of Sample Respondents ……………………………………

153

Table 22 Length of Time with Current Firm of Sample Respondents ………………

154

Table 23 Primary Work Function of Sample Respondents …………………………

155

Table 24 CPA Licensure of Sample Respondents ……………………………………

156

Table 25 Responsibility Level of the Sample Respondents …………………………… 156

Table 26 CPA Firm Size of Sample Respondents ……………………………………

157

Table 27 Cronbach’s Alpha for Surveys’ Scales ……………………………………

162

Table 28 Cronbach’s Alpha for Transactional Leadership Subscales ………………

162

Table 29 Definitions of Skewness and Kurtosis ………………………………………. 164

Table 30 Normality Statistics for Each Variable ……………………………………

165

Table 31 Bivariate Correlation Analysis, Transformational Leadership to ECQ Scales

………………………………………………………………………………………… 167

Table 32 ANOVA for Transformational Leadership (MLQ) to Caring (ECQ) ………. 168

Table 33 ANOVA for Transformational Leadership (MLQ) to Lawcode (ECQ) ……

168

Table 34 ANOVA for Transformational Leadership (MLQ) to Rules (ECQ) ……

169

Table 35 ANOVA for Transformational Leadership (MLQ) to Instrumental (ECQ) 169

Table 36 ANOVA for Transformational Leadership (MLQ) to Independence (ECQ)

169

Table 37 Bivariate Correlation Analysis, Transactional Leadership upon ECQ Scales

…………………………………………………………………………………………

172

Table 38 Bivariate Correlation Analysis, Laissez-faire Leadership to ECQ Scales

xxi

Table 39 ANOVA for Laissez-faire Leadership (MLQ) to Rules (ECQ).…………

174

Table 40 ANOVA for Laissez-faire Leadership (MLQ) to Instrumental (ECQ) ……

174

Table 41 Bivariate Correlation Analysis, FSGO Understanding Scale to ECQ Scales 176

Table 42 Bivariate Correlation Analysis, FSGO Understanding Scale to MLQ Scales 177

Table 43 Bivariate Correlation Analysis, REL Religiosity Scale to ECQ Scales ……

178

Table 44 Bivariate Correlation Analysis, REL Religiosity Scale to MLQ Scales ……. 179

Table 45 Between-Subjects (Gender) …………………………………………………. 180

Table 46 Univariate Analysis of Variance between Gender (IV) and Transformational

Leadership (IV) to Caring (DV) ………………………………………………………. 180

Table 47 Between-Subject Factors (Assurance Services and Tax) …………………… 183

Table 48 Univariate Analysis of Variance between Respondents’ Primary Service

Function (IV) and Transformational Leadership (IV) to Lawcode (DV) .……………. 183

Table 49 Between-Subject Factors (Assurance Services and Tax) …………………… 185

Table 50 Univariate Analysis of Variance between Respondents’ Primary Service

Function (IV) and Transformational Leadership (IV) to Rules (DV) .……………

185

Table 51 Between-Subject Factors (CPA Licensure) ………………………………… 187

Table 52 Univariate Analysis of Variance between Respondents’ CPA Licensure and

Transformational Leadership (IV) to Rule ((DV) ……………………………………

187

Table 53 Between-Subject Factors (Firm Size) ………………………………………. 189

Table 54 Univariate Analysis of Variance between Respondents’ Firm Size and

Transformational Leadership (IV) to Lawcode) ……………………………………… 189

xxii

Table 56 Univariate Analysis of Variance between Respondents’ CPA Licensure and

Transactional Leadership (IV) to Rule ((DV) ………………………………………… 191

Table 57 Between-Subject Factors (Time with Firm) ………………………………… 193

Table 58 Univariate Analysis of Variance between Respondents’ Time with the Firm and

Laissez-faire Leadership (IV) to Lawcode ((DV) ……………………………………

193

Table 59 Post Hoc Power and Effect Size Analysis .…………………………………

196

Table 60 Frequency Means of Leadership Style Recognized ………………………… 206

Table 61 Leadership’s Correlation to the Caring Ethical Climate …………………

207

Table 62 Transformational Leadership Building Actions or Behaviors.…………

209

Table 63 Leadership’s Correlation to the Lawcode Ethical Climate ………………… 213

Table 64 Leadership’s Correlation to the Rules Ethical Climate ………………

215

Table 65 Leadership’s Correlation to the Instrumental Ethical Climate ……………

217

Table 66 Leadership’s Correlation to the Independence Ethical Climate …………

218

Table 67 Transactional Leadership Correlation to All Ethical Climate Types …….… 221

Table 68 Laissez-faire Leadership Correlation to All Ethical Climate Types ……

…. 227

Table 69 Regulatory Correlation to Ethical Climate Types and Leadership Styles ,…. 231

Table 70 Religiosity Correlation to Ethical Climate Types and Leadership Styles

List of Tables in Appendices

234

Table A1 FSGO Amendments Requiring Organizational Ethical Culture …………… 279

Table B1 MLQ Scales, Number of Questions, and Scale Definitions ………………… 283

Table C1 ECQ Scales, Number of Questions, and Scale Definitions ………………… 293

Table D1 Reliability Recommendations for MLQ Administration …………………… 298

xxiii

Table P1 Coding of MLQ Survey ……………………………………………………

351

Table P2 Coding of ECQ Survey ……………………………………………………

351

Table P3 Coding of FSGO Survey ……………………………………………………. 351

Table P4 Coding of REL Survey ……………………………………………………… 352

Table P5 Coding of Demographic Information ………………………………………. 353

Table Q1 MLQ Leadership Style Factors and Scales

.…………………………….

356

Table Q2 ECQ Factors and Scales …………………………………………………… 357

Table Q3 FSGO Understanding ……………………………………………………… 358

Table Q4 Religiosity or Religiousness ………………………………………………

358

Table W1 Regulatory Correlations …………………………………………………

388

Table X1 Religiosity Correlations …………………………………………………… 390

Table Y1 Post Hoc Power Table

…………………………………………………

392

xxiv

List of Figures

Figure 1. Conceptual Integrated Leadership & Ethical Climate Framework …………. 21

Figure 2. Statistical Integrated Leadership & Ethical Climate Framework …………… 99

Figure 3. Minimum Practice Structure Sought from Population ……………………

104

Figure 4. Female by Leadership Responsibilities ……………………………………. 149

Figure 5. Male by Leadership Responsibilities ………………………………………. 150

Figure 6. Estimated Marginal Means of Caring ……………………………………… 182

Figure 7. Estimated Marginal Means of Lawcode …………………………………… 184

Figure 8. Estimated Marginal Means of Rules and Service Function ………………

186

Figure 9. Estimated Marginal Means of Rules and CPA Licensure …………………

188

Figure 10. Estimated Marginal Means of Lawcode and Firm-size …………………

190

Figure 11. Estimated Marginal Mean of Rules and CPA Licensure …………………. 192

Figure 12. Estimated Marginal Means of Lawcode to Length of Time with Firm

194

Figure 13. Summary of Findings for Hypotheses H1, H2, and H3 …………………

198

Figure 14. Summary of Findings for Hypotheses H4, FSGO (IV) to ECQ (DV) ……. 199

Figure 15. Summary of Findings for Hypotheses H4, FSGO (IV) to MLQ Leadership

Scales (DV)

………

………………………………………………………………

199

Figure 16. Summary of Findings for Hypothesis H5. REL (IV) Scale to ECQ (DVs)

Scales

………………………………………………………………………………

200

Figure 17. Summary of Findings for Hypothesis H5. REL (IV) Scale to MLQ (DVs)

Scales ….……………………………………………………………………………… 200

Figure 18. Utah’s Public Accounting Profession’s Future Leadership Objective …… 223

xxv

List of Figures in Appendices

Figure R1. Process to Obtain CPA Firm Permission to Contact Organizational Members

……………………………………………………………………………………

360

Figure S1. Electronic Survey Landing Pad …………………………………………….362

Figure S2. Electronic Survey Informed Consent ……………………………………

364

Figure S3. Electronic Survey Instructions for MLQ …………………………………. 365

Figure S4. Electronic Survey, Sample of MLQ Questions …………………………… 365

Figure S5. Electronic Survey Instructions for ECQ …………………………………

366

Figure S6. Electronic Survey, Sample of ECQ Questions …………………………… 366

Figure S7. Electronic Survey Instructions for REL ………………………………

367

Figure S8. Electronic Survey, REL Questions ………………………………………

367

Figure S9. Electronic Survey, Survey Branch Question ……………………………

368

Figure S10. Electronic Survey, Instructions for FSGO Questions …………………… 368

Figure S11. Electronic Survey, Sample of FSGO Questions ………………………… 369

Figure S12. Electronic Survey, Instructions for Demographic Questions ……………. 368

Figure S13. Electronic Survey, Sample of Demographic Questions …………………. 369

Figure S14. Electronic Survey, Survey Incentive ……………………………………

370

Figure S15. Electronic Survey, Survey Submission Notice …………………………

371

Figure T1. Electronic Survey Pathway ………………………………………………

373

Figure U1. Histogram of Transformational Leadership Scale .……………………

375

Figure U2. Histogram of Transactional Leadership Scale

………………………….

376

Figure U3. Histogram of Laissez-faire Leadership Scale .…………………………

376

xxvi

Figure U5. Histogram of Lawcode Ethical Climate Type Scale .

…………………

377

Figure U6. Histogram of Rules Ethical Climate Type Scale …………………………. 378

Figure U7. Histogram of Instrumental Ethical Climate Type

………………………

378

Figure U8. Histogram of Independence Ethical Climate Type Scale

……………….379

Figure U9. Histogram of SEC Understanding Scale

………………………………

379

Figure U10. Histogram of Religiosity Scale .………………………………………… 380

Figure V1. Scatterplot of Caring Ethical Climate (DV) to Leadership Styles (IVs)

382

Figure V2. Scatterplot of Lawcode Ethical Climate (DV) to Leadership Styles (IVs)

383

Figure V3. Scatterplot of Rules Ethical Climate (DV) to Leadership Styles (IVs) …

384

Figure V4. Scatterplot of Instrumental Ethical Climate (DV) to Leadership Styles (IVs)

…………………………………………………………………………………………

385

Figure V5. Scatterplot of Independence Ethical Climate (DV) to Leadership Styles (IVs)

………………………………………………………………………………………… 386

xxvii

List of Equations

Equation 1. Sample Size ……………………………………………………………….107

1

Chapter 1: Introduction

Despite the increased regulation of the public accounting profession (Hart, 2009;

Holthausen, 2009), arguments for ethics reform in accounting (Cohen & Pant, 1991),

whether in the public accounting profession’s corporate financial reporting operations

(Staubus, 2005) or accounting education (Armstrong, 1987; Armstrong, Ketz, & Owsen,

2003; Ponemon, 1990; Thorne, 2000), appears warranted. Accountants directly and

indirectly continue to make unethical or worse accounting decisions resulting in financial

loss (KPMG, 2006). Not only do these unethical accounting decisions result in financial

loss, according to Niece and Trompeter (2004), Carpenter and Reimers (2005), Kirk

(2005), Efendi, Srivastava, and Swanson (2007), these unethical accounting decisions,

made or allowed by financial reporting employees and external auditors, respectively,

continue to erode the public’s trust in the accounting profession. Public trust is a bedrock

ethical principle for the accounting profession (AICPA, 2010).

Jensen (2005) stated that financial statement fraud is an agency theory conflict

between agent and principal, when there was a lack of financial statement reporting

governance and internal controls. Albrecht, Albrecht, Albrecht, and Zimbelman (2012)

stated that financial statement fraud has the largest financial loss impact of all fraud

schemes. Overall fraud is estimated to be 5% of organizational annual earnings, which

represents approximately $2.9 trillion of the 2009 gross world product (ACFE, 2010). Of

the fraud cases voluntarily reported to the Association of Certified Fraud Examiners, to

be compiled in their biennial Report to the Nations, fraudulent financial statement

reporting represented 68% of total reported dollar losses (ACFE, 2010).

2

The researcher reviewed the background of unethical or fraudulent accounting

decisions that have led to investor and creditor loss and to the growing public distrust of

financial reporting markets assurers. Psychological, sociological, and personal moral

misbehavior are at the foundation of the accounting profession’s failure to mitigate this

growing public distrust. A psychological, sociological, moral, and spiritual

understanding of higher ethical behavior and supporting organizational structures and

mechanisms are believed needed to reverse this growing trend of unethical and fraudulent

financial reporting and abuse.

Background of the Problem

Accountants’ unethical and fraudulent accounting reporting communicates false

financial information to users of financial statements. A fraudulent financial statement is

one of three major categories of occupational frauds and abuses. The three categories are

bribery and corruption, asset misappropriation, and fraudulent financial reporting (Wells,

2004).

Understanding why accounting professionals breach the public’s trust and

commit fraudulent financial reporting behavior, and assessing ways to mitigate future

fraudulent financial reporting behavior, can provide useful knowledge to strengthen the

accounting firm’s ethical climate. Understanding how to build more ethically compliant

organizations will be valuable to certified public accounting firms to minimize loss

because of fraudulent financial reporting activities. Research provides a variety of

theories about why the problem of fraudulent financial reporting persists. Albrecht,

Romney, Cherrington, Payne, and Roe (1982) indicated that business criminal behavior

has theoretical roots in psychology, sociology, and moral development.

3

The researcher extended cognitive behavior theory and attempted to provide

evidence about whether subordinates’ perceptions of their immediate superior’s

leadership style, their understanding of regulatory compliance recommendations, and

their personal institutional religiosity and compassionate service, correlates to their

organizational ethical work climate perceptions. The interdisciplinary relationships of

sociological-, psychological-, and moral-development epistemological foundational

arguments are discussed in the ensuing pages. Much criminal behavior stems from

relationships.

Sociological Foundation and Leadership Relationships

The slogan, “white-collar crime” and the sociological means of perpetuating

criminal behavior through the theory of differential association, first appeared in Edwin

Sutherland’s seminal book, White Collar Crime, in 1949 (Galliher & Guess, 2009).

Differential association allows the offender to perpetuate illegal behavior among

participants and learners, while isolated from unwelcome definitions about such criminal

behavior. In other words, differential association can occur in the workplace

environment, especially where a subordinate is learning from an immediate supervisor or

focal leader in which the workplace information and responsibility are fragmented and

departmentalized (Darley, 2004), such as found in the public accounting profession. In

an earlier work, Sutherland (1940) stated that white-collar crime learned by subordinates

from their superiors, was very much an accepted “folkway” of doing things.

Important to consider here is the socializing correlation upon the new professional

staff into an organization’s “folkway” of doing things. Components of an organizational

ethical climate are generally

the perceived prescriptions, proscriptions, and

4

permissions regarding moral obligations in the organization” (Victor & Cullen, 1988, p.

101). Understanding those socio-relational associations that correlate to subordinates’

perception of the organization’s highest ethical climate expectations could be useful in

reinforcing ethical activity. The researcher sought to understand how work relationships,

between an immediate superior and subordinate, relate to accountants at various levels of

the accounting firm’s hierarchal structure. Criminal psychology has produced theories

about why crime occurs.

Psychological Foundation and Leadership Effect

The psychology literature for criminal behavior is extensive. An emerged

psychological theory of business criminal behavior is the fraud triangle (Wells, 2004).

The fraud triangle suggests that fraudulent behavior occurs when three factors exist, (i) an

opportunity to commit, convert, and conceal the fraud, (ii) cognitive psychological

pressure from self or from the management environment, and (iii) cognitive

rationalizations or attitudes justifying the criminal act (Golden, Skalak, & Clayton, 2006).

Fiedler and House and Mitchell suggested that industrial psychology models link

leader behavior to subordinate satisfaction and motivation” (Fiedler 1967, and House &

Mitchell, 1974, as cited by Jiambalvo & Pratt, 1982, p. 734). Lou and Wang (2009)

found, from a study of 97 fraud and 467 non-fraud cases that a critical risk factor,

inclining toward fraudulent behavior, was management’s lack of integrity. This

suggested connection between management’s lack of integrity and unethical subordinate

behavior supports Ajzen’s (1980) subjective norm condition in the theory of planned

behavior (TPB).

5

In this study’s context, leaders’ ethical leadership behavior could be related to an

organizational ethical climate and that fraudulent financial reporting emanates from the

theory that subordinates’ personal rationalizations, a cognitive psychological process,

allows them to justify their ethical or unethical behavior. An accounting firm’s

subordinate’s reference for ethical behavior could very well be his immediate focal

leader. For instance, for accounting staff personnel that would be their supervisor; for

accounting supervisors that would be their managers; for accounting managers that would

be their partners to whom they work closely with and report; and for accounting partners

that would be the firm’s managing partner. The researcher sought to better understand

the accounting firms’ immediate leadership correlative relationship to the subordinate’s

perception of the ethical work climate. Prior ethical behavior is thought to influence

future ethical behavior.

Ethics, Moral Development, and Spirituality’s Correlation to Behavior

Accounting ethics is about how accountants rationalize right behavior among

relationships. Trevino and Nelson (2007) stated, “Ethics is the bedrock on which all of

our relationships are built

it’s about the quality of that connection” (p. 19).

Accounting ethical relationships can be between two individuals in a give-and-take

contractual relationship. Another such relationship exists between the sole auditor

responsible for writing the financial statement audit opinion, or the accounting firm,

whose signature rests upon the audit opinion, to all financial information-reliant

stockholders and other corporate/societal stakeholders. Ethical behavior is embedded

with all these professional accounting relationships. Ethics theories’ principles are the

6

foundation of the ethical climate theory (ECT) (Victor & Cullen, 1987) as well as the

moral principles behind moral development and behavior (Kohlberg, 1981).

Cognitive moral development progresses through stages (Kohlberg, 1979, 1984).

Kohlberg identified six specific stages of moral development. The first and second

stages, known as the pre-conventional stages, suggest that people’s moral decisions are

based upon rewards and punishments. The third and fourth stages, known as the

conventional stages, posit that people’s moral decisions are based upon peer group

expectations and respect for standards, rules, and laws. The fifth and sixth stages, known

as the post-conventional stages, speculate that people’s moral decisions are based upon

logical application of universal moral principles, regardless of legal or societal

implications.

Persons with higher moral development are thought to less likely submit to

rationalizations and other forms of pressure to commit unethical behavior; however,

research repeatedly shows that possessing developed moral sensitivity, judgment, and

intention is not necessarily sufficient to ensure moral behavior; rather, the

decision

maker must have the necessary strength of character to carry out her moral intentions”

(Bay & Greenberg, 2001, p. 376). Foundational to the theory of moral development is

the justice virtue theory (Kohlberg, 1981). Virtues are foundational for ethics behavior

frameworks in education (Keiser & Schulte, 2007), and in management (Arnaud, 2006;

Victor & Cullen, 1987), and thus for the accounting profession.

Personal moral courage or character, when exercised, is a virtue that enables

ethical behavior in the face of personal loss or danger (Kidder, 2005). Cheffers and

Pakaluk (2005) suggested a distinction between intellectual virtues and character virtues.

7

Intellectual virtues can be taught, such as good judgment and objectivity, whereas

character virtues are acquired through experience and practice, such as moral courage or

bravery, for instance. Aristotle (1962) remarked that persons become just by doing just

acts, temperate by doing temperate acts, brave by doing brave acts. Cheffers and Pakaluk

(2007) stated, “Character

is formed by and tested in small things and first things” (p.

227). By extension some may surmise that accountants would better able exhibit moral

courage, and not wilt under pressure to commit fraudulent financial reporting, by having

only exhibited prior morally courageous behaviors. Some authors believe that the resolve

to have moral courage can be taught (Bebeau, 2002; Bergman, 2002; Blasi, 1983; Comer

& Vega, 2006). Consistent ethical behavior, at all levels of leadership and management,

bring to bear and may influence the perception of the organization’s ethical work climate

expectations (Neubert, Carlson, Kacmar, Roberts, & Chonko, 2009). Other factors are

suspected to affect ethical behavior: spirituality and religiosity.

Spirituality and Religiosity

Spirituality and virtue ethics are emerging, in management literature, as possibly

related factors for employee affective commitment, satisfaction, and productivity

(Corner, 2009). Ashar and Lane-Maher (2004) suggested that there exists a growing

need to allow employees experience a sense of spirituality at the workplace. Spirituality

can be achieved through more meaningful accomplishment, wholeness, and integration

with the workplace through the use of organizational values of consciousness,

collaboration, and inner orientation to express their integrity (Steingard, 2005). Wilber

(1998) stated

that knowledge come in three epistemological eyes: the eye of flesh

(empirical), the eye of mind (reason), and eye of contemplation (spiritual) (as cited in

8

Steingard, 2005, p. 237). Spirituality in the workplace is also the connection between

individuals’ sense of personal religiosity influencing organizational work behavior

(Kutcher, Bragger, Rodriquez-Srednicki, & Masco, 2010). Community with religious

institutions, in which a higher discourse of spiritual values is taught and ritually and

personally practiced, nurtures spirituality. Spirituality, in a form of religious and

community service orientation, enhance ethical behavior intention (Christensen, Barnes,

& Rees, 2005).

A growing sense of urgency is developing for the accounting profession to

possess a greater ethical awareness and practice of obligatory ethical behavior. In

December 2006, The International Federation of Accountants (IFAC) released an

exposure draft on developing and maintaining professional values, ethics, and attitudes

for individuals within accounting firms (IFAC, 2006). The researcher sought to

understand the ethical workplace climates among the various hierarchal levels within

accounting firms, how leadership correlates to ethical climate perceptions, and whether

regulatory requirements and religiosity may correlate to the perceptions of leadership and

ethical workplace climate types.

Continued Fraudulent Financial Reporting

Despite decades of increased regulatory and professional organizations’ efforts,

and after the Report of the National Commission on Fraudulent Financial Reporting

(NCFFR, 1987), many global and Fortune 500 large companies continue to be convicted

of fraudulent financial reporting (Engelbracht, van Aswegan, & Theron, 2005; Grojean,

Resick, Dickson, & Smith, 2004). Mulki, Jaramillo, and Locander (2009) stated, in the

Economist,

that in the United States alone, there are 165 business organizations and

9

65 executives currently under investigation for violation of ethical behavior” (2007, p.

125). In support, the Committee of Sponsoring Organizations (COSO, 2010) stipulated,

from information from the Securities Exchange Commission (SEC), that an increase of “.

347 alleged cases of public company fraudulent financial reporting from 1998 to 2007,

up from 294 cases from 1987 to 1997” (p. III), wherein 89% of the chief executive

officers (CEOs) and chief financial officers (CFOs) were found to be part of reporting

corruption. The committee also called for further research to identify how to prevent,

deter, and detect fraudulent financial reporting (COSO, 2010). Continued research of

accounting firms’ leadership, ethical climate, and other contributing factors is necessary

for formulating solutions for this problem.

Statement of the Problem

Responsible public accounting leaders, who audit corporate financial reporting

activity, may very well be negatively affected by factors influencing their financial-

statement-auditing-opinion decision. Arens, Elder, and Beasley (2012) stated, “Despite

efforts by the profession to address legal liability of CPAs, both the number of lawsuits

and sizes of awards to plaintiffs remain high

.” (p. 114). In China, Firth, Mo, and

Wong (2005) reported on Chinese increased sanctioning against public accounting

auditors involved with fraudulent financial reporting. In 2006, the SEC reported that

1,420 financial statement restatements occurred (Apostolou & Crumbley, 2007). This

2006 increased financial-statement-restatement frequency, caused by error or irregularity,

is

12 times higher than in 1997” (Apostolou & Crumbley, 2007, p. 320).

Continuing, Apostolou and Crumbley reported that the restatements were more often

caused by

management’s maintenance of an expensive lifestyle or pressure to meet

10

goals (incentive), and the perpetrators’ lack of awareness that their actions are wrong

(self-rationalization) or simple lack of integrity” (p. 3). Public accounting auditor

involvement in fraudulent financial reporting was not totally excluded from these

restatement actions and could be attributed to the lack of a positive ethical work climate.

Corporations and especially the public accounting firms must conceive of and

implement organizational solutions to lessen the likelihood of future unethical and

fraudulent financial reporting behavior. Some of these organizational solutions may

involve appropriate ethical leadership within the public accounting organizations;

organizational structures, policies, and procedures that support a preferred organizational

ethical climate type; and of hiring and retaining employees who are ethically and

spiritually sensitive, aware, and possess the ability to exhibit moral courage when under

professional duress.

Through the use of a quantitative research study with a correlation design the

researcher attempted to understand better the leadership, ethical climate, and other

moderating factors that are hypothesized to contribute to fraudulent financial reporting

and abuse, by having (i) gathered evidence of the leadership factors positively related to

the accountantsethical awareness, (ii) analyzed what employees perceived to be the

discernible ethical climate, and (iii) evaluated whether the subordinate’s cognizance of

exogenous regulatory requirements and his or her measured religiosity may have

influenced leadership and ethical climate type perceptions.

Purpose of the Study

The purpose of this quantitative doctoral research study, with a correlation design,

is to describe and quantify the relationships between accounting subordinates’ perception

11

of their immediate leader’s full-range leadership theory (FRLT) style, ethical climate

factors (Antonakis & House, 2002; Victor & Cullen, 1988), and whether understanding

of the Federal Sentencing Guidelines for Organizations and personal religiosity bear on

the subject. The proposed research study used four survey instruments. The first two

surveys are the standard Multifactor Leadership Questionnaire (MLQ) by Bass & Avolio

(2007) and the Ethical Climate Questionnaire (ECQ) by Victor and Cullen (1988)

surveys. The second two surveys were two self-constructed questionnaires obtaining

information about the respondents’ familiarity with the Federal Sentencing Guidelines for

Organizations (FSGO) recommendations and the respondent’s salience with his or her

religiosity (REL) or personal compassionate service commitment. The immediate

supervisors’ leadership style was an independent variable. The subordinate accountants

perceptions of the five empirically derived ethical climate types (Victor & Cullen, 1988)

were the dependent variables. The subordinate’s knowledge of regulatory requirements

and the subordinate accountant’s religiosity or compassionate service practices were the

moderating (intervening) variables. The data collected in this study was quantitative.

All these surveys are believed useful in presenting a more comprehensive

exploration of subordinates’ perception of positive ethical climate awareness or how to

improve future research. For instance, the use of the MLQ and ECQ surveys confirmed

prior theoretical research assumptions that as leadership style tends toward ethical

transformational leadership, the more aware subordinates’ are of a positive ethical work

climate (Aronson, 2001). Neubert, Carlson, Kacmar, and Chonko (2009), as well as this

researcher, suggested that ethical leadership styles correlate to the subordinate’s

perception of ethical climate. As a consequence of having found confirmatory correlative

12

evidence, in the public accounting profession, promoting, training, and exercise of

transformation leadership style should follow. Additionally, this research study’s

proposed possible antecedent intervening variables, the degree of religiousness or

compassionate service effort behavior integration and regulatory compliance awareness,

were sought to be measured by the REL and FSGO surveys, respectively. The data

collected for these two variables provided useful information and precipitated better

research recommendations for the future.

These four survey instruments were used to study a variety of accounting firm

personnel (e.g., accounting staff, supervisors, managers, and partners) with firms that

typify the accounting profession (e.g., local, small-; local, large-; and regionally-sized

firms) in the State of Utah, across a variety of service disciplines (e.g., assurance

services, tax, and consulting, and other services). These four instruments, along with the

collected demographic data provided some valuable information about improving the

ethical climate of accounting firms.

Significance of the Problem

The accounting profession is expected to benefit from the examination of

relationships between leadership styles and organizational ethical climate types by

illuminating the current state of organizational leadership and follower perceptions. The

result of this leadership and ethical climate study will add to the sparse research and body

of knowledge related to the public accounting profession. Also, this research model can

be used repeatedly in other geographic jurisdictions, eventually aggregating to a robust

understanding of the national or global public accounting profession’s effective

leadership styles, perceived ethical climates, and subordinate accountants’ personal

13

understanding of regulatory requirements, and religiosity’s effect. The discoveries, of

this study, have implications for all accounting firms servicing financial banking, trading,

and other business markets.

Specifically, the research findings provided insight into how various levels of

public accounting organizational ethical leadership values and leadership styles may help

shape a positive ethical climate for subordinates. The discoveries, of this research study,

should inspire accounting firms to receive ongoing interventional training for the

development of firm personnel’s ethical values, leadership practices, and community

citizenship. Also, those reading and understanding the findings of this study, should be

motivated to possess a heightened and sustained cognition and compliance desire to

ethical behavioral expectations regarding prescriptions, proscriptions, and permissions of

the moral obligations of the public accounting organization and society.

Significance of the Study to Policies and Practices of Public Accounting

Public accounting firms that have strong ethical transformational leadership and

demonstrate an organizational ethical climate possess an organizational sustainability not

experienced by the ethics-failed Arthur Andersen firm (Boyd, 2004). Brennan (2003)

stated that when organizations put their stakeholders and employees first, through leaders

with integrity and an organizational ethical work climate, such organizations

will

gain market share, build loyalty, and outperform and outlast their competitors” (p. 20).

Significance of the Study to Leadership in Accounting

The accounting profession continually needs to assess its ethical leadership and

their organizational ethical work climate as well as become champions of ethical and

morally courageous conduct. Wilson (1970) stated, about the continued lapses in

14

corporate ethical conduct, that

the slow anger [of society] at immoral ones

[corporations and its leaders] threatens capitalismand thus freedom—itself” (p. 60).

For instance, Gunz, Gunz, and McCutcheon (2002) found that whether the accounting

firm was large, medium, or small, organizational ethical climate and available

organizational ethical mechanisms affected how ethical decisions were made. Hood

(2003) found corroboration that transformational chief executive officer (CEO)

leadership

tends to foster ethical practices in organizations” (p. 270). Mendoca

(2001) stated that true and effective leadership resonated throughout an organization

when leadership processes were consistent with ethical and moral values.

Leadership that exhibit constant ethical conduct and demonstrate transformational

leadership style may encourage followers also to conduct themselves ethically. Bass and

Steidlmeier (1999) stated that transformational leadership has “strong philosophical

underpinnings and ethical components” (Ethical issues and transformational leadership

section, para. 1). Leaders who exhibit ethical and moral behavior and function in an

organizational effective ethical climate may increase the likelihood of organizational

followers to behave ethically (Zhu, 2006).

Also, leaders significantly contribute to affecting the sustainability of an ethical

work climate (Ireland & Hitt, 2005; Neubert et al., 2009; Sama & Shoaf, 2008) and

transformational leadership may create and perpetuate the ethical climate of organizations

(Van Aswegen & Engelbrecht, 2009). Accounting organizational leaders must

effectively communicate, promote, and sustain a heightened organizational cognition of

the organization’s ethical climate policies, procedures, and performance expectations.

Ethical leadership behaviors congruent with the firm’s ethical climate behavioral

15

mechanism expectations could better safeguard accounting firms from ethical failures,

which can and have led to consequential and catastrophic loss (Boyd, 2004; Zandstra,

2002).

Understanding the relationship between the leadership styles exhibited by public

accounting leaders and the effect on immediate subordinate followers’ perceptions of the

firm’s ethical climate can provide a benchmark understanding of the status of the firm’s

appropriateness of leadership styles and the sufficiency of the firm’s ethical climate

components. A growing body of literature, although small in scope, provides some

information about public accounting firms’ leadership, ethical climate, and firm

personnel’s cognition of its importance (Bobek, Hageman, & Radtke, 2010; Gunz, Gunz,

& McCutcheon, 2002; Jiambalvo & Pratt, 1982). This researcher’s interpretation of the

research findings suggests that leadership development fostering the transformational

leadership style is desirable for sustaining an organizational ethical awareness; that ethics

training, for all levels of the CPA organization, should be continuous and ongoing, and

that employees understanding of professional standards and relevant governmental

regulations can minimize poor leadership’s influence and subordinate ethical perceptions.

Nature of the Study

The purpose of this quantitative research study, with a correlation design, was to

examine the degree to which public accounting firm’s leadership styles, and other

antecedent leadership and subordinate behaviors, are associated with creating and

sustaining subordinates’ perception of the organization’s ethical climate. Web-based

surveys were administered to accounting firm employees, of an acceptable sample size,

for several cross sectional analyses between firm sizes of Utah’s public accounting firms.

16

The study describes the relationship between accounting subordinates’ perception

of their immediate leader’s full-range leadership theory (FRLT) style (Antonakis &

House, 2002; Bass, 1985) to the subordinates’ perception of their own ethical climate

(Neubert et al., 2009; Sagnak, M, 2010), as moderated by the subordinates’

understanding of the Federal Sentencing Guidelines for Organizations (FSGO), and the

subordinates’ religiosity. The study used the Multifactor Leadership Questionnaire

(MLQ) for Research Web Data Collection (Bass & Avolio, 2010), and the Ethical

Climate Questionnaire (ECQ) surveys (Victor & Cullen, 1988). The study also used two

self-constructed surveys relating to the FSGO and religiosity. Respectively, these

instruments were used to study a variety of accounting firms, with sizes that populate the

accounting profession (e.g., local, small-; local, large-; and regionally-sized firms),

between subordinate’s work-task relationship with the leader (e.g., assurance and tax

services), and length of work-life experience (e.g., staff, supervisor, and manager levels).

To understand better the relationships between leadership styles and subordinates’ ethical

climate perception in public accounting firms, a sample of professional accounting

personnel, who work for public accounting firms in the State of Utah, was selected for

this study.

Overview of the Design Appropriateness

This quantitative research study, with a correlation design, investigated the

relationships between independent, dependent, and moderating (intervening) variables

(Creswell, 2005). To answer this study’s research questions, survey respondents selected

discrete Likert scale choices, thus providing quantifiable data to measure the degree of

their perceptions and correlative associations among the variables. The public accounting

17

subordinate quantified his immediate focal leader’s full-range leadership style, which

could be transformational (IV), transactional (IV), or laissez-faire (IV) (Antonakis &

House, 2002). The subordinates’ perception of the accounting firm’s ethical climate

factors have been identified as the dependent variables (DV). The proposed public

accounting’s conceptual ethical framework (see Figure 1, below) presented is the

relationship of exogenous compliance/punishment recommendations (MV) to the

subordinates’ perception of the firm’s ethical climate (DV). Last, and somewhat unique,

a moderating (intervening) variable (MV), measuring church attendance and extent of

compassionate personal service may. Both these moderating variables were thought to

relate both to the subordinate leader’s perceived leadership style and the workplace

ethical climate type. The following research questions emanate from the research’s

proposed conceptual leadership and ethical climate framework.

Research Questions

Research questions naturally arise from the accounting profession ethical failings.

Regulators, industry leaders, and society in general, seek to understand about how to best

improve the accounting firm’s ethical climate awareness and reduce possible future

instances of participation in fraudulent financial reporting. The research sought to

explore answers to the following questions:

1. To what degree do partners, managers, and supervisors’ various leadership

styles relate to the subordinate’s perception of what are ethical expectations and

behaviors to be followed?

18

2. To what degree does the subordinate’s knowledge of regulatory influence

relate to the subordinate’s perception of the ethical climate and the focal leader’s

leadership?

3. To what degree does the subordinate’s religiosity or compassionate service

relate to the subordinate’s perception of the ethical climate and the focal leader’s

leadership?

A variety of hypotheses naturally derive from these research questions.

Quantitative Hypotheses

The following five hypotheses tested the relationships between the components of

the theorized conceptual integrated leadership and ethical climate framework (see Figure

1 below).

First null hypothesis

H1 0 : A leaderstransformational leadership style does not correlate to the

subordinate’s perception of the firm’s ethical climate in Utah.

First alternate hypothesis

H1 A : A leaders’ transformational leadership style correlates to the subordinate’s

perception of the firm’s ethical climate in Utah.

Second null hypothesis

H2 0 : A leaders’ transactional leadership style does not correlate to the

subordinate’s perception of the firm’s ethical climate in Utah.

Second alternate hypothesis

H2 A : A leaders’ transactional leadership style does correlate to the subordinate’s

perception of the firm’s ethical climate in Utah.

19

Third null hypothesis

H3 0 : A leaders’ laissez-faire leadership style does not correlate to the

subordinate’s perception of the firm’s ethical climate in Utah.

Third alternate hypothesis

H3 A : A leaders’ laissez-faire leadership style does correlate to the subordinate’s

perception of the firm’s ethical climate in Utah.

Fourth null hypothesis

H4 0 : Known exogenous regulatory/punishment factors, as perceived by

subordinates, do not correlate to the subordinate’s perception of the firm’s ethical

climate and immediate leadership in Utah.

Fourth alternate hypothesis

H4 A : Known exogenous regulatory/punishment factors, as perceived by

subordinates, does correlate to the subordinate’s perception of the firm’s ethical

climate and immediate leadership in Utah.

Fifth null hypothesis

H5 0 : The degree of service or church attendance does not correlate to the

subordinatesperception of the firm’s ethical climate and immediate leadership in

Utah.

Fifth alternate hypothesis

H5 A : The degree of service or church attendance does correlate to the

subordinates’ perception of the firm’s ethical climate and immediate leadership in

Utah.

20

Analysis of the data collected and testing of these five hypotheses added to the

understanding of leadership and ethical climate awareness for public accounting firms in

Utah and whether regulatory recommendations and personal religiosity also relate.

Theoretical Framework and Rationale for Proposed Hypotheses

The current study was developed to quantify data needed for better understanding

the relationships between the organization’s leadership styles and the subordinates

awareness of the accounting firm’s ethical climate factors. The variables and analytical

tools chosen generally allowed the researcher to answer the research questions. The

research questions required obtaining empirical or quantitative evidence about relational

associations between the variables. The core research questions were intended to

quantity relationships of variables and the extent to which they are statistically correlated,

and whether or not those correlations are significant. The choice of quantitative methods

allowed the researcher to obtain these empirical evidences.

The present researcher’s discoveries provided greater knowledge about whether

subordinates’ understanding of external regulatory recommendations and whether their

personal religiosity has any correlative relationship to leadership perception and ethical

climate awareness. Each of these factors and rationale for inclusion in the research

model are discussed in the following pages.

21

Known Exogenous

Regulatory/Punishment

Federal Sentencing

Guidelines (FSG) & Sarbanes

-Oxley Regulations

Subordinates' Subordinates' Immediate Superior's Perception of Leadership Style Ethical Climate
Subordinates'
Subordinates'
Immediate Superior's
Perception of
Leadership Style
Ethical Climate
Perception of Leadership Style Ethical Climate Extent of Religiosity/Compassionate Service Figure 1.
Perception of Leadership Style Ethical Climate Extent of Religiosity/Compassionate Service Figure 1.

Extent of

Religiosity/Compassionate

Service

Figure 1.

Conceptual Integrated Leadership and Ethical Climate Framework

22

Leadership

Leadership without ethical conduct can be dangerous, destructive, and even toxic.

(Toor & Ofori, 2009, p. 533)

Research, covering a variety of companies in South Africa, demonstrated that

ethical transformational leadership has a positive correlative relationship to fostering an

organizational ethical climate (Englebrecht, Van Aswegen, & Theron, 2005). An ethical

climate possesses perceived prescriptions, proscriptions, and permissions regarding moral

obligations and thus, ethical conduct. Professional accounting firms’ leadership influence

is thought to be responsible for the ethical climate and ethical actions of the

organization’s personnel (Reidenback & Robin, 1991). Two major leadership styles are

the transformational and transactional (Antonakis & House, 2005; Bass, 1985). Within

the transformation leadership style, traits of ethical behavior are present (Bass &

Steidlmeier, 1999). Trevino and Brown (2004) recommend that leaders exhibit ethical

conduct and consciously manage the organization’s ethical culture.

Ethical Climate

Ethical climate is a subcomponent of an organization’s culture. Cullen,

Parboteeah, and Victor (2003) defined ethical climate as

components of the

individual’s environment as perceived by the members” (p. 129). Also, ethical climate is

the psychological environment in which individual behavior takes place (Buchan, 2006).

The ethical climate gestures to employees what is acceptable behavior (Trevino,

Butterfield, & McCabe, 1998). A view of how ethical climate and an organization’s

culture relate is important. Verbos, Gerard, Forshey, Harding, and Miller (2007)

suggested that positive ethical organizations emerge because the presence of certain

23

organizational elements. Those organizational elements or practices are authentic

leadership, formal and informal ethical organizational structures, processes and systems

that are aligned with ethical practices, and an ethical culture supported by salient ethical

identities among members who create a strong ethical climate.

Professional accounting firms should possess policies, procedures, and training

mechanisms that encourage compliance with regulatory requirements, regulatory

recommendations, ethical expectations, and good leadership. Professional accounting

firms’ prominent ethical identities could be those individuals who practice ethical

behavior reinforced by their own personal religiosity. The ethical climate context,

defined as identifiable ethical components, perceptions, and permissions for what is

acceptable and appropriate behavior at a given point of time, is an organizational context

providing opportunities to measure and assess effectiveness. Next, regulations are

established to direct appropriate and expected behavior.

External Regulatory Forces

Employees, for a variety of positive and negative reasons, behave the way they

do. Positive reasons may be related to rewards. Negative reasons might be the avoidance

of punishments (Kaler, 2000). Professional accountants play a role in sustaining ethical

behavior in financial reporting (Verschoor, 1992). Some posit that positive awards and

negative punishments tend to motivate persons to operate at the lower levels of

Kohlberg’s stages of moral reasoning (Baucus, Beck, & Dudley, 2005) and propose ans

ethical communities approach to heighten ethical reasoning to higher levels. Research

has found that organization can rise above the punitive sanctions-based punishment

approach for motivating ethical behavior. The organization that promotes a values-based

24

or principles approach can influence employees to develop and act on ethical values,

which appears more successful for ethical compliance (Tyler, Dienhart, & Thomas,

2008). However, the regulatory punishments pathway for non-compliance also has a

measureable positive correlation to the ethical decision-making (Gurley, Wood, &

Nijhawan, 2007). An organization’s policies and procedures carrot-and-stick approach

for creating an organizational “ethical village,” of sorts, may be best for persuading

employee ethical behavior. Last, religiosity is too beginning to show possible

relationship to ethical behavior.

Religiosity

In several marketing studies, religion was a factor research suggested influenced

ethical decision-making (Hunt & Vitell, 1986; Hunt & Vitell, 1993; Singapakdi,

Salyachivin, Virakul, & Veerayangkur, 2000). Oumlil and Balloun (2009) found strong

positive correlations between religiosity and idealism; however, there were mixed

outcomes between religiosity and some components of ethical intentions, as also shown

in this research study. Singhapakdi, Salyachivin, Virakul, and Veerayangkur (2000)

found that religiosity had mixed results in explaining the ethical decision-making of

managers in Thailand. Another foreign study found Malaysian corporate stakeholders

showed how varying levels of religious practices

scored significantly higher on

ethical and lower on economic dimension compared to the ‘low religiousness group’”

(Dusuki, Farrah, & Tengku, 2008, p. 46). Weaver and Agle (2002) emphasized that

religious identity salience was related to ethical behavior. Religious salience or

religiosity is the “degree to which that religion constitutes a central part of self-identity

(p. 81). Understanding the degree of religious salience, in the form of religious service

25

attendance frequency and weekly compassionate service hour commitment level was not

dispositive in this study.

Definitions of Terms

Definitions provide clear meaning. The following terms are used pervasively

throughout this study.

Accountant in private industry: A licensed certified public accountant working in

private industry in a variety of accounting functions (e.g., assistant controller, controller,

chief financial officer, chief operating officer, chief executive officer, or other

accounting-related or significant officer position, etc.) (Hunton & Wier, 1996; Warrick,

Daniels, & Scott, 2010).

Ethical climate: The identifiable ethical components, perceptions, and

permissions for what is acceptable and appropriate behavior or the

perceptions of

how the members of their respective organizations typically make decisions concerning

various events, practices, and procedures requiring ethical criteria” (Victor & Cullen,

1988, p. 2).

Ethical transformational leadership: Ethical transformational leadership is a

leader who, among other behaviors, exhibits personal moral behavior (Brown, Trevino, &

Harrison, 2005), ethical conduct, and encourages organizational ethical compliance and

conduct (Trevino & Brown, 2004).

Junior staff: A fifth level employee of accounting firms. This employee usually

has zero to one years of professional public accounting profession experience (Arens,

Elder, & Beasley, 2012).

26

Manager: A second level leader of accounting firms. This organizational leader

has four to ten years of professional public accounting profession experience. Internally,

managers typically have direct responsibility over assigned supervisors (Arens, Elder, &

Beasley, 2012).

Partner: An owner, principal, or director of a major service line within public

accounting firms. This organizational leader usually has 10 or more years of professional

public accounting profession experience. Internally, partners typically have direct

responsibility over assigned managers (Arens, Elder, & Beasley, 2012).

Public accountant: A licensed certified public accountant (CPA) working for a

public accounting firm. Public accountants operate under state licensing requirements

prescribing independence and other licensed industry requirements (i.e., continuing

professional education, ethics training, etc.) (Arens, Elder, & Beasley, 2012).

Religiosity, religiousness: The degree to which that religion or significant

compassionate service constitutes a central part of self-identity, through institutional

devotional attendance or hours of charitable compassionate service (Conroy & Emerson,

2004).

Senior staff: A fourth level employee of accounting firms. This employee usually

has one to two years of professional public accounting profession experience. Senior

staffs typically have no leadership responsibilities (Arens, Elder, & Beasley, 2012).

Supervisor: A third level leader of accounting firms. This organizational lower-

level leader has two to four years of professional public accounting profession

experience. Internally, supervisors typically have direct responsibility over assigned

senior and junior staff (Arens, Elder, & Beasley, 2012).

27

Assumptions

Research assumptions are components of the research approach that cannot or are

not controlled at the time the proposed research was carried out. Several assumption

made were: first, that accounting firm participants of the MLQ (Multi-leadership

Questionnaire) survey instrument would respond in a truthful and honest fashion; second,

that the same accounting firm participants of the second instrument, the ECQ (Ethical

Climate Questionnaire) survey, would respond likewise in a truthful and honest fashion,

as well as with and the demographic information requested; and third, that accounting

firm participants of the third FSGO (Federal Sentencing Guidelines for Organizations)

survey and the fourth REL (Religiosity) survey would respond in a truthful and honest

fashion. The basis for these suppositions of truthfulness and honesty is that the survey

instruments were administered in a confidential manner. Also, the researcher informed

potential respondents that the respondent’s answers, for analysis, were to be aggregated

and not identified to a particular individual or firm.

Scope and Limitations

Statistically, the findings from the present study is limited to the accounting

professionals of Utah who are licensed CPAs and working toward CPA licensure, who

are employed in local, small-, local, large-, and regionally-sized CPA firms. First, the

researcher proscribed discussion about ethics and its growing relationship to corporate

ethical social responsibilities (Caza, Barker, & Cameron, 2004; Van De Ven & Jeurissen,

2005). Also, the researcher may have included in the research and discussion sections of

this study, evidence about the relationship between ethics and religiosity, as it relates to

organization profitability, sustainability, stockholder theory, and the extending

28

stakeholder theory, as these all provide some relational association on the ethical climate

of organizations. However, this researcher is focused on the employee’s perceptions

about ethical climate behavior as a relationship to leadership style and whether regulatory

influence and religiosity relate to these perceptions. Second, the survey responders were

participant/observers. Third, because the surveys were administered on a sample basis,

perhaps only those respondents with strong views and opinions would think inclined to

respond. Fourth, the survey was limited to CPA firms with offices in the State of Utah.

Fifth, the researcher relied upon the reliability and validity of the MLQ and ECQ

instrument, as established by decades of continual use in published research. Sixth, the

two self-constructed surveys, for measuring the respondents’ understanding of the

Federal Sentencing Guidelines of Organizations (FSGO) and religiosity (REL), presented

some challenges. These research limitations are more lengthily discussed in Chapter 3,

Method and in Chapter 5, Conclusions and Recommendations.

The rationale for developing the two self-constructed surveys was predicated on

several concerns. Frist, there was no acceptable survey specifically measuring a

respondent’s understanding of the FSGO recommendations. Second, there was no

acceptable, simple survey measuring respondent’s religious salience, by focusing strictly

upon frequency of religious attendance and frequency of compassionate charitable

service. The researcher desired these two surveys to possess as few cogent questions as

possible. Both self-constructed surveys were field tested for understandability before

data gathering commenced. The last study limitation and scope is that the findings reflect

the respondents’ perceptions at the time of the study.

29

Limits to Interpretations

There are inherent weaknesses and limitations for interpreting correlation studies.

First, inferences are about systematically determined correlative associations or

relationships and not causal associations or relationships. Second, the researcher

identified and explained the variables’ possible and meaningful logical time or other

rational sequence order; however, interpretation errors can be made. Third, not all

variables are known and accounted for in the research model. Fourth, ethical climate

perceptions are complex; there are 5 empirically derived ethical climate types, with 26

associated factors. Each factor could have any number of other independent forces that

may have stronger correlative associations, besides those of understanding governmental

ethical conduct guidelines or personal religiosity. Fifth, the study responders came from

smaller representative firms (i.e., local, small-; local, large-, and regionally-sized firms).

Absent from this study were representative responders from national and international

firms.

Generalizability

Because of the limited number of responses only came from smaller-sized CPA

firms, the limits imposed on this research study reduced the possible generalizability of

the results. The study sought to obtain research data from all common-sized CPA firms,

including those of national- and international-organizational structure. Ethical climate

type perceptions, from larger firms would necessarily have different contextual factors

from the smaller firms. For instance, the larger firms might be more bureaucratic, but

have stronger formalized ethical training practices; they might have different hiring

standards; they might have less flexible professional staff service function

30

responsibilities. Also, the larger firms might have higher turnover rates than the smaller,

more personalized CPA firms. Generalizability of correlative relationships is limited to

CPAs, or those professionals tracked to become CPAs, working in smaller CPA firm-size

structures, in the State of Utah, during 2012.

Summary

Chapter 1 presented an introduction and overview of this quantitative research

method, with correlation design, study of organizational leadership style, ethical work

climate, and the potential moderating influences of factors regarding the subordinate

respondents’ understanding the Federal Sentencing Guidelines or Organizations and their

own religiosity. Chapter 2 provides a literature review of the ontological and

epistemological foundations for these components of this study’s conceptual integrated

leadership and ethical climate framework.

31

Chapter 2: Review of the Literature

Chapter 2 presents a literature review of relevant topics regarding ethically

effective leadership styles and ethical climate. Three important generalized research

questions, for a quantitative research study, with a correlation design, help establish the

research relevance and the literature review approach. Those three questions are, (i) is

the research based upon a current research paradigm and is the paradigm established,

contrary, or emergent?, (ii) upon what ontological discipline is the research based?, and

(iii) is the research clear about the ontological orientations to justify the epistemological

anchoring chosen to design and develop the research study?(Lauriol, 2006, p. 32).

The current study based its research paradigms upon several theories shown to

correlate to follower (i.e., subordinate employee) intent and behavior in the workplace.

The conceptual integrated leadership and ethical climate framework integrates several

theories, which prior research data resulted in correlative associations (see Figure 1).

These theories are philosophical ethical theories, the organizational ethical climate

theory, the full-range leadership theory (FRLT), and the emerging theoretical correlation

of external regulatory controlling factors as well as the nascent emerging positive

correlations of religiosity on follower ethical intent. Research for each of these

theoretical paradigm components are reviewed and discussed in subsequent pages

because they offered foundation and support for the proposed research.

Documentation

The literature review explored secondary resources regarding leadership, ethical

climate, the Federal Sentencing Guidelines for Organizations, religiosity, and related

topics narrowing to the accounting profession. The electronic library resources, for

32

scholarly peer-reviewed articles, several dissertations, and some books, generally came

from University of Phoenix’s electronic University Library. That library’s databases

most frequented were EBSCOhost, Gale PowerSearch, and Proquest. Textbooks and

web-based research materials used in the Doctorate of Business Administration’s (DBA)

courses, pertaining to organizational leadership, ethical climate or culture, and for the

topics germane regarding scholarly research were also referenced. Other secondary

resources, such as published books, were resourced from the Southern Utah University’s

Gerald R. Sherratt Library, in Cedar City, Utah. The Internet was also used to find

certain accounting firms’ published ethics materials and current accounting profession’s

published ethics standards.

The extant research accessed voluminous references for foundational

understanding in leadership. The research ultimately sought references narrowing down

to the full-range leadership theory styles (FRLT) and particularly those references related

to the public accounting profession. The research found scores of articles about ethical

climate theory (ECT). Published research for both the FRLT leadership styles and ECT

topics has been extensive since the mid- to late-1980s, the time of their theoretical

introductions. Comparatively, resting on top of the extant leadership literature are only

several research articles dealing with the public accounting profession. Likewise, resting

on top of the extant ethical climate theory research is sparse literature about the public

accounting profession. Absent from current peer-reviewed literature is any research that

provides information about whether accounting subordinates’ understanding of

regulatory compliance forces and their personal religiosity having possible moderating

33

influence on their perceptions of their focal leadership or their local workplace ethical

climate. A listing of references used in this study is displayed in Table 1.

Table 1

Number of Scholarly References Used in This Study

Reference Aging

Total

Percentage

2006 to present

123

44.2%

Prior 2006

154

55.8%

All references

277

100.0%

Founding and Extending Theory-Related Research

Founding or extending theorists

41

14.8%

Empirical research

83

30.0%

Sources of References

Peer-reviewed articles

198

71.5%

Books

57

20.6%

Dissertations/unpublished research

4

1.4%

Official websites (i.e., corporations, industry, government, etc.)

18

6.5%

Moral Philosophies and Ethics Theories

Accounting ethics is the moral-based behavior between an accountant and at least

one other person, in a variety of business-related transactions. Virtually all accounting-

related business transactions are within this minimum two-person relationship. Other

34

accounting relationships can be immense trusting relationships regarding business

transaction expectations, such as, the ethics relationship between the financial statement

audit services and all financial information-reliant investors, such as, current and

prospective stockholders, debt holders, and other corporate/societal stakeholders (Brooks,

2007). Integrity within these business relationships is paramount for daily business

transactions rolling up to the smooth and predictable functioning of capital markets.

Integrity is the instrumental virtue of practicing what one believes to be the correct course

of action. At the base of ethical theories are moral philosophies.

A review of moral philosophies is useful for identifying and understanding why

some ethics systems struggle to satisfactorily resolve accounting moral dilemmas.

Varying moral philosophies will lead to differing ethical behaviors. Not all philosophical

frameworks are appropriate for the moral obligations attached to the professional public

accountant. Selecting the best moral philosophy, for the accounting profession, forms the

reasoned basis to a logical ethical decision-making process.

Moral philosophy can be categorized in a number of frameworks. Pojman (2003)

suggested moral philosophy could be categorized as

utilitarian ethics, deontological

ethics, virtue ethics, morality and religion, and applied ethics” (p. vi). Cavanagh,

Moberg, and Velasquez (1981) identified three kinds of moral theories, as foundational to

ethics theories; they are utilitarianism, rights, and justice. Some research for accounting

and business ethics propound that an ethics decision-making framework should include a

deontological philosophical perspective (Brooks, 2007; Micewski & Troy, E, 2007).

Mintz and Morris (2011) categorize the following ethical philosophies as germane to the

35

accountant’s ethical decision-making processes, egoism, utilitarianism, justice and rights,

and virtue ethics.

Most single ethics theories, such as egoism or utilitarianism, are not sufficient to

resolve many accounting and business ethical dilemmas facing accountants today

(Cheffers & Pakaluk, 2005). The foundational premises of each ethics theory is useful

information for understanding the formulation of the higher-level, moral decision-making

processes involved. Also, some of these ethics theories relate, on a foundational level, to

the moral developmental psychologists’ theories promulgated by Lawrence Kohlberg

(1981) and James Rest (1979). This relationship of moral philosophy to ethical decision-

making frameworks is an epistemological and reasoned basis for the ethical climates type

perspectives posited to exist in business organizations (Victor & Cullen, 1988). The

following discussion of moral and ethics’ principles is categorized along the same

philosophy underpinning the scales of the ethical climate research by Victor and Cullen,

which are, egoism, benevolence, and deontology or principle. Victor and Cullen (1988)

stated that the general difference of these moral philosophical ethics theories are the

major philosophical categories of

maximizing self-interests, maximizing joint-

interests, or adherence to principle” (p. 104).

The study of philosophical theories about maximizing self-interests, maximizing

joint-interests, or adherence to principle helps bring understanding about how individuals

make decisions to do the right thing. For cognitive decisions leading to action,

individuals must justify in their own minds the actions they are about to take.

Accounting firms subordinate employees observe their immediate superiors actions,

which

strongly influence the role behavior of all organizational members” (Bobek,

36

Hageman, & Radtke, 2010, p. 638). Deshpande (1996) found, in a nonprofit

organization, that “Managers perceived a stronger link between ethics and success when

they observed greater levels of caring and lower levels of instrumentalism in decision-

making” (p. 319). At heart of the instrumentalism approach to ethical decision-making is

an egoistic tendency (i.e., maximizing of self-interests) by decision makers.

Maximizing Self-Interest

Egoism is a philosophy that seeks to explain how goodcan result from

maximizing self-interest. In western classical history, Aristotle (384 BC to 322 BC),

Thomas Hobbes (1588 to 1679), Bernard Mandeville (1670 to 1733), Adam Smith (1723

to 1790), Friedrich Nietzsche (1844 to 1900), Ayn Rand (1905 to 1982), and others have

discussed egoism. Egoism is a philosophical decision-making perspective least desirable

for subordinates of their superiors and closely related to Victor and Cullen’s (1987)

instrumental ethical climate type. Instrumental ethical climates were identified and least

favorable for employee job satisfaction in education (Sagnat, 2010), for Taiwanese

hospital nurses (Tsai & Huang, 2008), and in a nonprofit organization (Deshpande,

1996). However, in the high-stressed and high-production goal sales environments the

instrumental ethical climate type, with leadership that would remove uncertainty and

prescribe limitations, is found and preferred by subordinates (Mulki, Jaramillo, &

Locander, 2009).

Egoism, Description and Analysis

Ayn Rand (1964) epitomized egoism in her work, The Virtue of Selfishness,

which stated,

the achievement of his own happiness is man’s highest moral purpose”

(p. 23). Egoism and self-interest are not without representation in business literature.

37

Egoism is a philosophy that is parallel to utilitarianism. Utilitarianism suggests that one

ought to consider everyone and produce the greatest net good over evil; however, egoism,

posits that each person ought to maximize his or her own benefitrational self-interest

(Woiceshyn, 2008). Both theories are teleological, in that they hold the right thing to do

is always to produce a certain end good derived from chosen actions. The utilitarian

claims that the good that one is to maximize is the universal good. The egoist, on the

other hand, holds that the good to ultimately aim at is only one's own.

In a business ethics context, Adam Smith often argued,

that individual self-interest in a competitive marketplace produces a state of

optimal goodness for society at large, because the peculiar nature of self-

interested competition causes each individual to produce a better product and sell

it at a lower price than competitors. Thus, enlightened self-interest leads, as if an

invisible hand, to the best overall situation (Pojman, 2002, p. 91).

Accounting Ethics Related Example, Egoism

Ferrell, Fraedrich, and Ferrell (2008) stated, “International Business Machines

(IBM) has a policy of donating or reducing the cost of computers to educational

institutions; in exchange, the company receives tax breaks for donations of equipment,

which reduces the cost of its philanthropy” (p. 151). Reduction of taxable income is a

result of this self-interested act by IBM. An egoist may become a whistleblower about a

coworker’s cheating on a sales report, to safeguard against fraudulent reporting, only to

safeguard better his own employment position or reward. Examples, such as these two

egoistic-oriented actions, one by a corporation, another by an individual, demonstrate that

38

egoism can produce overall societal good. However, an egoist self-interested choice can

be either virtuous or evil.

Criticisms of the Egoism Theory for Accounting

The largest criticism against egoism is that it fails to consider those who are

impacted by the decisions (Mintz & Morris, 2011). Pojman (2002) stated, “The

economist argument is not an argument for ethical egoism. It is really an argument for

utilitarianism, which makes use of self-interest to attain the good of all” (p. 92). Societal

wellbeing cannot always be achieved through self-interested means. For instance,

egoism would not provide for public education, social security, or other welfare

programs. Corporate egoism would only pursue social responsibility if it can help fulfill

some corporate strategic self-interest objectives (Porter & Kramer, 2006). Steib (2006)

sought to reconcile egoism displayed by employers and employees as mutually beneficial

and that egoism permits for loyalty and stronger affectionate ties between the employer

and employee.

Self-interest, if solely grounded on a

Faustian bargain of choice between

preserving the virtue of one’s soul or pursuing wealth and power” (Miller, 2006, p. 14) is

giving way to self-interest coupled with other linkages to other organizational social

interrelationships, such as spiritual capital, social capital, and human capital, oftentimes

instigated by exogenous social pressure. Spiritual capital should be assessed in

acquisition decisions, such as to what extent can the organization encourage noble

concern beyond self. Social capital is the leader’s ability to use social networks, norms

of reciprocity, trustworthiness in providing market demanded goods or services. Human

39

capital is the organization’s personnel that bring creative competiveness through

individual competencies and motivations.

Self-interest alone, without coupling with other virtues, such as legal and moral

restraints, trust, and consideration of organizational spiritual, social, and human capital

could lose out in the long-run performance. Adam Smiths’ Wealth of Nations should be

read with his book, the Theory of Moral Sentiments. Campbell (1967) wrote about

reconciling self-interest and socially beneficial manifestations, quoting Adam Smith,

stated,

And hence it is, that to feel much for others and little for ourselves, that to restrain

our selfish, and to indulge our benevolent affections, constitutes the perfection of

human nature; and can alone produce among mankind that harmony of sentiments

and passions in which consists their whole grace and propriety. (p. 572)

Alone egoism, or the pursuit of self-interest, is not a sufficient moral philosophy

for individuals within accounting firms making ethical decisions. Accountants’ decisions

extend well beyond the self, and out to important societal relationships. Supporting this

moral postulate is one of the accounting profession’s ethical principles. In the American

Institute of Certified Public Accountants (AICPA), Code of Conduct, Article II, The

Public Interest, it states, “Members should accept the obligation to act in a way that will

serve the public interest, honor the public trust, and demonstrate commitments to

professionalism” (AICPA, 2010, heading section).

Maximizing Joint-Interests

Maximizing joint-interests does have greater societal arguments for explaining

rational ethical decision-making. Ethics theories that support the notion of social-

40

considering benevolence relate to the maximizing the interests of others. Two

philosophical systems address this notion of wider social considerations when making

moral decisions and they are utilitarianism and corporate social responsibility.

Utilitarianism, Description and Analysis

Utilitarianism, as an ethics theory, is the calculus of doing what is right, that is,

the calculus of the greatest good for the greatest number drives the efficacy of a moral

decision. Some western philosophers addressing this kind of moral decision-making

system are Aristotle (384 BC to 322 BC), Francis Hutcheson (1694 to 1746), David

Hume (1711 to 1776), Jeremy Bentham (1748 to 1832), John Stuart Mill (1805 to 1873),

and Peter Singer (1946 to present). A utilitarian guided decision-maker will do that act

that contributes to the greatest calculated utility. Utilitarian philosophy requires a-priori

determination of consequential outcomesthe worth of an act is determined by its moral

contributions’ outcome. A popularly attributed utilitarian slogan states that the ends

justify the means. The utility principle states that

the only thing that is good in itself

is some specific type of resultant state (e.g., pleasure, happiness, welfare)” (Pojman,

2002, p. 108).

Two types of utilitarianism have emerged from early criticisms: act- and rule-

utilitarianism. Act- and rule-utilitarianism suggest,

that an act is right if it results in as much good as any available choice

alternative. Rule utilitarianism states that an act is right if it is required by a

moral rule or law. That is itself a member of a set of rules whose acceptance

would lead to greater utility for society than any available choice alternative

41

Accounting ethics related examples, utilitarianism. Colle & Werhane (2008)

stated that moral motivation asks, “Why should I do the right thing?” instead of the

ethical question, “What is the right thing to do?” (p. 752). They suggested that the three

main ethical theories, virtue ethics, deontological ethics, and utilitarianism all have

something to contribute to a unifying ethical decision-making theory they called, moral

imagination. In this model, moral imagination requires critical analysis to calculate the

benefits of actions that result from proposed ethical behavior. Schaefer (2008) argued

that utilitarianism pushes against the Milton Friedman axiom of maximum benefit to the

corporate self-interest. Schaefer continued and presented three cogent arguments for

utilitarianism, generally stressing the necessity that the shareholder consider the wider

community in which the organization operates. Robert Solomon (2002) put this point

this way,

According to Aristotle, one has to think of oneself as a member of the larger

community, the Polis, and strive to excel, to bring out what was best in ourselves

and our shared enterprise. What is best in usour virtuesare in turn defined by

that larger community, and there is therefore no ultimate split of antagonism

between individual self-interest and the greater public good (p. 73).

The utilitarian philosophy is the theory for which corporate distributive pressure

rests (Audi, 2007). However, the accountant, in a capacity of a corporate employee or a

public accountant is not governed by what wealth is to be justifiably distributed. Rather,

the corporate accountant is governed by overarching moral obligations of internal

accurate financial reporting, providing accurate externally-required communications,

safeguarding of organizational assets for authorized use, and efficient and effective