Asian Review of Accounting

Emerald Article: Chinese auditors' views about independence and employer values Ying Han Fan, Gordon Francis Woodbine, Glennda Scully

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To cite this document: Ying Han Fan, Gordon Francis Woodbine, Glennda Scully, (2012),"Chinese auditors' views about independence and employer values", Asian Review of Accounting, Vol. 20 Iss: 1 pp. 5 - 5 Downloaded on: 26-03-2012 To copy this document: permissions@emeraldinsight.com This document has been downloaded 4 times.

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Chinese auditors views about independence and employer values Author Details Author 1 Name: Ying Han Fan Department: School of Accounting University/Institution: Curtin University of Technology Town/City: Perth Country: Australia Author 2 Name: Gordon Woodbine Department: School of Accounting University/Institution: Curtin University of Technology Town/City: Perth Country: Australia Author 3 Name: Glennda Scully Department: School of Accounting University/Institution: Curtin University of Technology Town/City: Perth Country: Australia Corresponding author: Gordon Woodbine Corresponding Authors Email: Please check this box if you do not wish your email address to be published Biographical Details (if applicable): [Author 1 bio] Dr. Ying Han Fan is based at the School of Accounting at Curtin University of Technology, Perth, Australia. [Author 2 bio] Dr. Gordon Woodbine is based at the School of Accounting at Curtin University of Technology, Perth, Australia. [Author 3 bio] Professor Scully is the acting Head of School of Accounting at Curtin University of Technology, Perth, Australia. All three authors share an interest in auditing and are actively involved in behavioural research involving existing and future accountants. A number of their joint papers have been conferenced and published in refereed journals. Structured Abstract: Purpose: This paper describes the results of a cross-sectional survey of Chinese auditors that examines their views about independence and client relationship issues associated with the current Code of Professional Conduct. The study also compares the findings with attitudes about the perceived ethical environment of their workplaces. Design: During late 2006, 578 useable questionnaires were obtained from members of the Chinese Institute of Public Accountants registered with four regional chapters. The empirical research was exploratory and involved the construction of a scale for measuring attitudes towards independence issues and a modified version of the Corporate Ethical Values scale. (Hunt, Wood, and Chonko, 1989) Findings: Auditors clearly identify with the importance of Codes of practice and indicate that their views are significantly affected by observations about the ethical climates associated with their immediate workplaces. Codes of practice are seen to be relevant the greater the concern about the ethicality of their workplaces, although attitudes were tempered when client relationship matters are considered, suggesting that some degree of cultural tolerance of questionable activities is inevitable, and that tolerance increases with age. Originality: This study is the first to directly access Chinese practitioners in order to measure attitudes towards western based standards of practice in association with their workplace conditions. It is a sizable survey providing useful insights into how practitioners are coping with the demands of their profession in China. Keywords: Code of Conduct in China, audit independence, corporate ethical values

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Chinese auditors views about independence and employer values

Structured Abstract: Purpose: This paper describes the results of a cross-sectional survey of Chinese auditors that examines their views about independence and client relationship issues associated with the current Code of Professional Conduct. The study also compares the findings with attitudes about the perceived ethical environment of their workplaces. Design: During late 2006, 578 useable questionnaires were obtained from members of the Chinese Institute of Public Accountants registered with four regional chapters. The empirical research was exploratory and involved the construction of a scale for measuring attitudes towards independence issues and a modified version of the Corporate Ethical Values scale. (Hunt, Wood, and Chonko, 1989) Findings: Auditors clearly identify with the importance of Codes of practice and indicate that their views are significantly affected by observations about the ethical climates associated with their immediate workplaces. Codes of practice are seen to be relevant the greater the concern about the ethicality of their workplaces, although attitudes were tempered when client relationship matters are considered, suggesting that some degree of cultural tolerance of questionable activities is inevitable, and that tolerance increases with age. Originality: This study is the first to directly access Chinese practitioners in order to measure attitudes towards western based standards of practice in association with their workplace conditions. It is a sizable survey providing useful insights into how practitioners are coping with the demands of their profession in China. Key words: Code of Conduct in China, audit independence, corporate ethical values

1. Introduction If the Peoples Republic of China wishes to continue to sustain its current growth and deserve its status as a developed nation in the long term, then it is essential that it establish a sound and credible financial information infrastructure. Company auditors play an important role in achieving this objective and their belief in and adherence to a Code of Professional Conduct is crucial in encouraging audit independence. The purpose of a Code of Professional Conduct is to guide and establish high professional and ethical standards in business (Finn et al., 1988). It provides minimum practice standards that are to be applied diligently by accountants and auditors in the conduct of their professional duties. The Chinese version titled General Standard on Professional Ethics (GSPE) was issued in 1993. In 2003, Chinese accounting regulators adopted the concepts Independence in Fact and Independence in Appearance fashioned on the Code issued by the International Federation of Accountants (IFAC). The Practice Guidelines on General Standards of Professional Ethics was issued after these two independence concepts were adopted. Issues to be considered in this paper include: Is this western based standard acceptable to Chinese auditors and how do they view issues of independence? One way to determine the extent to which the Chinese version of the Code is being applied to encourage audit independence is to gauge the perceptions of its importance and relevance in the minds of practicing auditors. There has been limited research on the use and application of the Code of Professional Conduct in China. Davison and Chang (2001) examined the views of Chinese auditors on a number of important auditing topics, which included the Code of

Professional Conduct. They found that the Code of Professional Conduct was rated relatively highly and that Chinese auditors believed that it is important for accounting professionals. However, their study did not examine the content of the Chinese Code of Professional Conduct or the auditors views about the content in any detail. The authors of this study believe that Independence in Appearance is as important as Independence in Fact and could be impaired as a result of cultural influences. Thus the first motivation of this study is to find out the Chinese auditors views about the General Standard on Professional Ethics. It focuses on audit independence in two forms: (1) auditors integrity and objectivity and (2) audit-client relationship. The authors of this study are also interested in finding out how Chinese auditors identify their firms ethical culture and how this might affect their perceptions about the value of the Code. Attention is to be given to examining perceptions about their

managers ethical behaviour and their firms system of dealing with identified forms of unethical practice. These two considerations were identified in Hunt et al.s (1989) study and were used in prior studies in countries other than the Peoples Republic of China. The motivation for this research is summarized in the following two research questions: 1. Do Chinese auditors view their Code of Professional Conduct as adequate as it relates to issues of independence and audit-client relationships? 2. What organizational and personal factors are likely to affect the views of Chinese auditors?

The second question examines the connection between Chinese auditors views about their firms ethical values, and their attitudes relating to the two elements of the Code mentioned above. This question also examines the connection between Chinese

auditors personal factors such as age, education, experience, position and their attitudes towards the Code of Professional Conduct. 2. Literature review Chinese Auditors Perceptions of the Code of Professional Conduct A fundamental premise of any professional code is independence. Audit independence is embodied in statutes and professional standards in many countries. It is generally agreed that independence deals with the actual and perceived ability of accountants (including auditors) to act with integrity and objectivity (Windal and Corley, 1980). According to Mautz and Sharaf (1961), there are two components of independence; practitioner independence and professional independence. Practitioner independence isthe real independence of the individual practitioner in the performance of his work (p. 204). It has to do withthe ability of the individual practitioner to maintain the proper attitude in the planning of his audit program, the performance of his verification work, and the preparation of his report (p. 205). Professional independence is the appearance to the public of the independence of a group of professionals. Hence, two forms of independence have emerged as relevant: Independence in Fact and Independence in Appearance. According to the Law of the Peoples Republic of China on Certified Public Accountants (1993), the role of a Certified Public Accountant (CPA) is to protect the public and investors interests and promote the development of a sustainable economic market (Article 1). The General Standards on Professional Ethics (GSPE) was issued by the CICPA in accordance with this legislation. In China, there is no formal definition of audit independence in the Auditing Standards but the General Standards on Professional

Ethics (GSPE) adopted the concepts of Independence in Fact and Independence in Appearance in the standard. For example, the GSPE requires all CPAs to observe the principles of independence, objectivity and fair dealing in performing professional activities (Article 4) and to maintain independence in fact and in appearance (Article 5). It also requires that individual judgments must not be influenced by others, or by any circumstances and personal feelings (Article 9). Furthermore, it requires all members avoid any activities which could impair audit independence (Articles 7 and 8). Thus the Chinese Code provides controls to ensure a high quality of accounting and auditing services and a standard which Chinese auditors must comply with when making ethical decisions. Its formulation and implementation are supervised by the CICPA. Jakubowski et al. (2002) compared the Codes of Professional Conduct of certified/chartered accountants across eight countries and regions including Hong Kong and Taiwan. Results indicate that the rules relating to independence, objectivity, and conflicts of interest are similar however countries like the U.S., Canada, and Australia are more likely to use explicit language in their Codes. Countries like South Korea, India, Malaysia, Hong Kong, and Taiwan are less explicit in their formulations. Jakubowski et al. (2002) used Halls (1976) low and high context countries classifications to explain the differences. The content will be explicit and carry a message in high context countries and be less informative and couched in general terms in low context countries. Chinas position is considered similar to that of Hong Kong and Taiwan. It represents a low context culture and its Code of Professional Conduct focuses on general rules. In 2003, the CICPA issued Practice Guidelines on General Standards of Professional Ethics to provide detailed guidelines to assist CPAs in performing professional services. In its

October 2009 revision, the CICPA adopted the concept of fundamental principles from western based codes of conduct and uses the similar terms such as integrity, objectivity/independence, professional competence and due care, confidentiality, and ethical behaviour in the standard. However, it still contains less explicit information compared to those of Western countries like US, Australia, UK, etc., and the International Federation of Accountants (IFAC) Standard Code of Ethics for Professional Accountants. The implication of less explicit information in the General Standards on Professional Ethics (GSPE) implies that Chinese auditors may use their personal judgments more when applying the standard. It would be interesting to find out what Chinese auditors think about the western based Code? The core aspect of the GSPE is concerned with audit independence. It requires that all CPAs (1) should be independent, objective, demonstrate integrity, and be fair in performing their professional services, (2) not develop too close a relationship with clients or undertake/accept client employment positions, and (3) ensure that professional judgments and decisions are not be influenced by others. A major objective of this paper involves finding out whether Chinese auditors believe the code of professional conduct is important, concentrating on issues relating to audit independence. Organizational and personal factors Shafer (2008) examined ethical climate types in Chinese CPA firms based on the ethical climate questionnaire developed by Victor and Cullen (1987; 1988) and Cullen et al. (1993). Their questionnaire focuses on the ethical criteria used for decision-making i.e., egoism, benevolence, or principle and the locus of analysis. Shafer provides

evidence that an individuals perceptions of ethical climate have a significant effect on

his/her ethical intentions to commit ethically questionable acts. However, to this time no previous research has considered Chinese auditors perceptions about their managers ethical behaviour and their firms system of dealing with identified forms of unethical practice. Hunt et al. (1989) defined organisational ethical values asa composite of the individual ethical values of managers and both the formal and informal policies on the ethics of the organisation (p. 79). They are regarded asthe most important deterrent to unethical behaviour (Douglas et al., 2001, p. 105) and play a leading role in corporate governance (Schwartz et al., 2005). Prior studies show that by setting the ethical tone, top management helps reduce the ethical conflicts experienced by others within an organisation, and encourages ethical decision making (Finn et al., 1988). Hunt et al.s (1989) Corporate Ethical Values scale is based on Chonko and Hunts (1985) study and considerations ofthe degree to which organisations take an interest in ethical issues and act in an ethical manner (Hunt et al., 1989, p. 82) and reward/punishment systems in an organisation. They summarised organizational ethical values into two dimensions, (1 unethical workplace behaviours and (2) punishment systems. The first dimension is concerned with the existence of unethical behaviour and managers concerns about the ethical issues in their organisation. Two questions ask: (1) managers in my firm often engage in behaviour that I consider to be unethical and, (2) in order to succeed in my firm, it is often necessary to compromise ones ethics. The second dimension is concerned with the way top management responds to unethical acts. It has three items measuring employees perceptions of the punishment systems for unethical behaviour in their organisations. These are:

1. Top management in my firm has let it be known that unethical behaviours will not be tolerated 2. If a manager in my firm is discovered to have engaged in unethical behaviour that results primarily in personal gain (rather than benefitting the firm), he or she will be promptly reprimanded 3. If a manager in my firm is discovered to have engaged in unethical behaviour that results in firm gain (rather than personal gain), he or she will be promptly reprimanded This two dimensional model for gauging ethical climate within organisations is adopted within the framework of the study of Chinese auditors. 3. Research method Sample This study uses a survey methodology and was conducted over a three month period during 2006. According to the Chinese Institute of Certified Public Accountants website, CICPA has more than 5,600 accounting firm members and over 140,000 individual members including 69,000 practicing members and over 70,000 non-practicing members at 31 May 2006. According to the Charter of the Chinese Institute of Certified Public Accountants (2004), to be a member, it is necessary to pass the National Uniform CPA Examination and gain official approval for membership (Article 6, see

www.cicpa.org.cn). The practicing members are those who have obtained the CPA practicing certificate in accordance with the regulations (Article 6). A sample of Chinese auditors was drawn from local accounting firms in Shenzhen, Hangzhou, Beijing, and Kunming cities. Shenzhen represents the southern region of

China. Hangzhou, the capital city of Zhejian Province represents the coastal cities of China. Beijing, the capital city of China represents the northern cities of China, and Kunming, the capital city of Yunnan Province represents the inland cities of China. The survey instrument included a cover letter and a self-administered questionnaire. The self-administered questionnaire included demographic information about

respondents and questions concerning Chinese auditors beliefs about their Code of Professional Conduct and their firms ethical cultures. A Chinese expert (who speaks and reads English and Mandarin) was engaged to translate the scales from English to Chinese. Another Chinese expert then translated the scales back to English from Chinese to ensure equivalence in both languages. The data collection process was supported by the four regional chapters of the Chinese Institute of Certified Public Accountants (CICPA). Three hundred survey instruments were distributed by the regional offices in each of the four cities (1200 in total). A total of 612 responses were received giving a response rate of 51%. Most of the questionnaires were completed during professional development training sessions conducted by the Institutes, although a small number were distributed to members working in local accounting firms in order to bolster response rates. There were no delays associated with the collection process, although the authors acknowledge there may be some response bias associated with the completion of questionnaires within accounting firms (e.g., selective distribution and supervisor pressure). A further examination was undertaken to the quality of responses in order to check whether there were any inconsistent answers in relation to the completed instrument. If respondents did not answer the survey consistently, they were deemed invalid and excluded from this study.

Results show that 34 respondents did not answer survey questions consistently, reducing the useable number of respondents to 578, a response rate of 48%. 4. Measures Chinese Auditors Views about the Code of Professional Conduct The considerations which guide the development of a measurement instrument for the Code of Professional Conduct are audit independence and relationships between auditors and their clients based on the General Standards on Professional Ethics (GSPE). Two latent constructs are included in the instrument reviewing auditors beliefs about the Code of Professional Conduct, namely, (1) audit independence and (2) auditor-client relationships. The first construct includes three statements: (1) to be independent in performing an audit, (2) to act with integrity and objectivity in performing an audit, and (3) to resist clients pressures to maintain independence. The second construct has four statements concerning whether auditors should avoid developing too close a relationship with their clients: close relationships with a client should be avoided, (2) an employment offer from a client should be declined (3) avoid dependency on fees from certain clients, and (4) avoid conflicts of interest with clients. Thus a 7 item two-factor model: audit independence and audit-client relationship, was applied. Respondents were asked to state their agreement to these statements on a 7-point Likert scale ranging from strongly disagree to strongly agree. An internal consistency test of the sample data revealed high reliability (Cronbachs Alpha = .88). Although Cronbachs Alpha reliability coefficients confirmed that the scale was internally consistent, it is also necessary to determine if the scales were clearly differentiable. Construct validity confirms whether an instrument measures effectively what it is intended to measure. Thus a principal components factor

analysis with Varimax rotation was undertaken to determine if the items are logically correlated and load onto identifiable factors. In applying a reduction process factor eigenvalues > 1.00 were retained, and variable loadings > .05 were included with respect to each factor. A two factor model explaining 74% of the variance was extracted. The items 4 to 7 loaded significantly on factor 1 (with 58 % of the variance). The items 1 to 3 loaded significantly on factor 2 (with 16% of the variance). As anticipated, Factor 1 contained items that measure auditor-client relationships and is named audit-client relationships. Factor 2 contained items which measure independence in general and is named audit independence. Firms Ethical Cultures Hunt et al. (1989) developed a Corporate Ethical Values scale that has been widely used in prior studies (see Douglas et al., 2001; Singhapakdi et al., 1999; Vitell and Hidalgo, 2006). These studies used the average score of all five items to measure perceptions about corporate ethical values. However, in this study the scale was developed based on two underlying constructs, which if applied may provide better insights into respondent views about their organisations ethical values. An exploratory principal component factor analysis was again employed to identify the underlying factors. Two factors were extracted explaining 71% of the variance. Items 3 to 5 (see Appendix 1) load significantly on factor 1 (with 39% of the variance) and named punishment systems. The items 1 and 2 load significantly on factor 2 (with 31% of the variance) and named unethical workplace behaviours, establishing construct validity. Respondents were asked to indicate their level of agreement with these 5 items of the corporate ethical values on a 7-point Likert scale, ranging from strongly disagree (1) to strongly agree (7). For each respondent, a value for each construct was computed by 10

averaging scores of all factor items. A higher score for punishment systems factor indicates that respondents have stronger beliefs that unethical behaviour will be addressed within their firms. A higher score for unethical behaviours indicates that respondents display stronger beliefs that their firm as a whole entertains unethical practices. 5. Descriptive data and results There were five hundred and seventy-eight (578) useable responses from auditors with males 297 (51.4%) and females 281 (49.6%). The majority of respondents (81.5%) are aged between 20 to 40 years. The majority (65%) have a Bachelors degree. Within the Chinese context, the auditors occupy various positions broken into five levels including project managers and departmental managers. Just over half 53% of

respondents have between one to five years auditing work experience, 31% auditors have more than five but less than ten years work experience, and 89 (14.2%) respondents have more than ten years work experience. Details of demographic information provided by respondents are given in Table 1. The overall mean scores, standard deviations, and one-sample t-test for Chinese auditors views about the code of professional conduct and their firms ethical values are listed in Table 2. Results show that the overall mean scores of Chinese auditors views about the code of professional conduct for audit independence (mean = 6.37) and audit client relationships dimensions (mean = 5.89) are significantly higher than the mid-point value 4 at a 1% significance level. Using the one sample t-test, the mean score of audit independence is significantly higher than audit client relationships at the 1% significance

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level (t = 13.56; p-Value = .000). The mean ratings for audit independence range from 6.11 to 6.53 and for audit client relationships range from 5.80 to 5.96. Thus the answer for the first research question relating to the importance of the Code of Professional Conduct is that Chinese auditors believe audit independence and the avoidance of close client relationships are important, demonstrating a particularly high concern for the former. TABLE 1 Respondents Background Information
Gender: Male Female 20 30 years 31 40 41 50 Above 50 Accounting Diploma Bachelors degree Masters PhD Other Auditor Senior auditor Project manager Department managers Partner Senior partner 0 5 years 6 10 11 15 16 20 Over 20 Frequency 297 281 578 250 222 61 45 578 164 374 25 3 12 578 266 59 132 56 44 21 578 310 181 66 10 11 325 Percent 51.4 49.6 100 43.3 38.4 10.6 7.8 100 28.4 64.7 4.3 0.5 2.1 100 46 10.2 22.8 9.7 7.6 3.6 100 53.6 31.3 11.4 1.7 1.9 100

Age:

Education level:

Positions:

Audit Experience:

Table 2 also shows that the overall mean score of Chinese auditors views about their firms ethical values in the Punishment systems dimension (mean = 5.02) is significantly higher than the mid-point value 4 at the 1% significance level. However, the overall mean score of Unethical workplace behaviours (mean = 4.04, SD 0.81) is not

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significantly different from the mid-point value. The results in Table 2 also suggest that Chinese auditors are somewhat ambivalent in their concerns when it comes to tolerating unethical behaviour. An independent-samples t-test was conducted to examine gender differences with respect to views about the professional code ethics and their firms ethical values. A one way ANOVA was also employed to examine the differences of auditors views across other demographic variables. Significant outcomes are shown in Table 3. TABLE 2 Descriptive and One-sample T-test about Client Relationship and Audit Independence
Audit independence 1. Need to act with integrity and objectivity 2. Be independent in performing an audit 3. Resist clients pressure in order to retain independence Audit client relationships 1. Avoid an employment offer from clients 2. Avoid financial dependency on certain clients 3. Avoid a conflict of interest with clients 4. Avoid a close relationship with client Mean* 6.37 6.53 6.46 6.11 5.89 5.96 5.92 5.85 5.80 SD .84 .85 .93 1.09 1.09 1.28 1.27 1.34 1.33 t-statistic 67.49 p-value** .000

41.32

.000

Unethical workplace practices 4.04 .81 1.31 .190 1. Managers in my firm often engage in unethical 4.35 1.94 behaviours 2. It is often necessary to compromise ones ethics in 3.74 1.84 order to succeed in my firm Punishment systems 5.02 1.41 17.31 .000 1. Unethical behaviours that results in personal gain will 5.26 1.79 be reprimanded 2. Unethical behaviours will not be tolerated 5.16 1.72 3. Unethical behaviours that result in firm gain will be 4.64 1.83 reprimanded *The grand average of individual item scores along a seven-point scale ** Significance with respect to mid-scale value (4)

Results show that there is no significant difference about auditors views of the professional code ethics between males and females and across other demographic variables. Male auditors scored significantly lower than females in terms of their attitudes

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towards unethical workplace practices. Auditors from Shenzhen have a significantly higher mean score for audit client relationships than auditors from Kunming. TABLE 3 Multiple Comparisons across Demographics
Mean Difference Audit client relationships: Region: Shenzhen v. Kunming Unethical workplace practices: Gender: Male v. Female Punishment systems: Position: Auditor v. Senior auditors Project Managers v. Senior auditors .354* Std. Error .125

Sig. .024

-.407*

.143

.047

-1.079* -1.397**

.330 .343

.014 .001

* The mean difference is significant at the .05 level. ** The mean difference is significant at the .01 level.

A linear regression with forward stepwise method was performed to explore relationships between the dependent and independent variables. The dependent variables include Chinese auditors views about audit independence and audit client relationships, while the independent variables include their views about unethical workplace behaviours and extant punishment systems, which are likely to have a bearing on their attitudes to codes of ethical practice. Demographic factors inserted in the model include: gender, age, employment status, education, and experience. The interaction between unethical behaviours and punishment systems (i.e., the product of the two independent variables) is also used as an independent variable. The results of the regression are shown in Table 4. The variable relating to unethical work practices is presumed on theoretical grounds to act as a moderator (Sharma et al., 1981), in that it is likely to influence auditor views about the punishment systems in use (predictor variable) as well as views about the code

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of practice (criterion variable). The regression results support this assumption in this instance. TABLE 4 Results of Regression about Client Relationships and Audit Independence
Std. Beta Panel A: dependent variable = audit independence Independent variables: Unethical workplace practices Punishment systems Age Model F-value Model significance Model R2 Panel B: dependent variable = client relationships: Independent variables: Unethical workplace practices Interaction climate variable Age Model F-value Model significance Model R2 20.109 .000 .10 18.102 .000 .09 t-Statistic p-Value

.218 .154 .131

5.371 3.795 3.225

.000 .000 .001

.280 -.146 -.108

6.871 -3.577 -2.674

.000 .000 .000

The results indicate that except for age, demographic variables have no significant effect on audit independence and audit-client relationships. In Panel A, the results show that the test variables, views about unethical work practices, punishment systems, and auditors age are each positively associated with audit views about the importance of independence issues. Together, these significant variables explain 9% of the variation in the criterion variable. In Panel B, the results show that the test variable, Unethical workplace behaviours is positively associated with the criterion variable, while two factors (the moderating variable interaction between punishment systems and unethical management practices) each provide a negative influence. The regression model is again significant and explains 10% of the variation in the criterion variable. Thus this study

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found some evidence that ethical climates in the auditing firms appear to influence Chinese auditors attitudes towards the importance of the Code of Professional Conduct. 6. Discussion and conclusions The aim of this study is to examine Chinese auditors perceptions about aspects of a western based Code of Professional Conduct in use in China and aspects of their firms ethical culture and the effects of these views of their firms ethical values on their perceptions of the Code of Professional Conduct. The first research question was concerned with what Chinese auditors (i.e., members of the Chinese Institute of Certified Public Accountants) think of the Code of Professional Conduct. It was found that auditors had significantly strong views about the importance of audit independence and audit client relationships, consistent with Davison and Changs (2001) findings. Chinese auditors demonstrated a higher concern about the importance of audit independence compared to audit client relationships. This might be expected since Hofstede (1980; 1991) cultural theory suggests that the Chinese emphasize power distance, collectivism and femininity, along with stronger uncertainty avoidance tendencies and a long-term orientation. People strong in uncertainty avoidance are concerned about security in life and are uncomfortable in unstructured situations (Hofstede, 1980). Thus they adhere to strict laws and rules to avoid such situations. Prior studies also find that Chinese subjects have stronger views about idealism which is a belief in moral absolutes or universal truths (Forsyth, 1980). A number of Chinese studies report that business personnel demonstrate strong idealist beliefs. (Douglas and Wier, 2005; Redfern, 2005 and Woodbine, Fan and Scully, 2012) These studies suggest that Chinese auditors will tend to align themselves with stated codes (rules) of practice.

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The beliefs of Chinese people are influenced by Confucianism to varying degrees. Benevolence and righteousness are the core values of Confucianism (Liu, 1985). The Confucian golden rule, do not treat others as one would not like to be treated oneself, has influenced Chinese peoples behaviour for over three thousand years. These cultural values are consistent with a primary imperative of idealism that ones actions should avoid harm to others as suggested by Forsyth (1980). In addition, doing the right thing in order not to lose face is another Chinese cultural value. All these traditional cultural values can influence Chinese auditors view about audit independence. The relatively lower mean score for views about client audit relationships can also be explained in cultural terms. Chinese people form strong interpersonal relationships called guanxi orientations. For example, auditors will tend to develop close bonds within a small group setting, where trust will be limited within that relationship. These orientations are regarded as a product of the Chinese culture (Davies et al., 1995) and Su et al. (2003, p. 310) also suggest guanxi is culturally rooted, signifying social contracts and interpersonal exchanges of resources in a collectivistic society. Many westerners believe that guanxi is related to unethical behaviour like corruption and bribery (Chan et al., 2002) but from a cultural perspective Chinese people perceive guanxi to be acceptable (Lovett et al., 1999). Negative and positive aspects of guanxi have been investigated elsewhere (Fan, Woodbine and Scully, 2012) which identified Chinese auditors as being more amenable towards forming strong interpersonal relationships. The second research question examined how ethical climates and personal factors appear to influence attitudes towards the application of the Code of Professional Conduct. It was found that opinions about a firms ethical values influence Chinese auditors

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attitudes towards the importance of the Code of Professional Conduct. The more Chinese auditors agree with the notion that their workplaces are somewhat unethical and have punishment processes in place, the more they agree with the need to adhere to the Codes of Conduct in relation to issues of independence as a matter of principle. The position with respect to the importance of audit client relationships however is not as clear. Again, the more auditors agreed with the notion that unethical practices exist within their firms, the more they were inclined to indicate they believed in the importance of adhering to related codes of practice. However, the influence of the interacting variable (joint consideration of both unethical work practices and associated punishment systems), operates to offset the positive impact of the variable relating to existence of unethical work practices when identifying concern about the need to observe audit client relationships (dependent variable). It is clear that this factor reduces respect for adherence to this code and may explain the ambivalence of auditors to the existence of unethical work practices. This issue deserves further examination as the outcome may suggest that an important facet of audit conduct is not fully appreciated by practitioners. That is, although auditors value the importance of Codes of conduct, the existence of questionable work practices (especially relating to audit client relations) significantly tempers their views about their application within the workplace. The negative influence of age on attitudes towards the need to adhere to audit client relationship codes suggests that older (and probably more senior) auditors are less inclined to agree that audit client relationship rules need to be adhered to. Perhaps age (reflected in seniority and employment level) is also a factor encouraging ambivalence towards the existence of unethical practices when it comes to dealing with audit clients.

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This study confirms that Chinese auditors are more concerned about the relevance of codes of professional conduct (as they relate to issues of independence) when they identify strongly with workplaces that display higher levels of unethical work practices and the existence of associated punishment systems. In this context their responses are reactive, in the sense that they are aware that such practices exist and that appropriate punishment systems need to be applied in order to encourage adherence to professional codes of practice. The results of this study should be considered in the light of the inherent limitations of a survey research. Generalisability is limited because the sample may not be fully representative of certified Chinese auditors due to the data collection process. In addition, all respondents were from local Chinese accounting firms although this sector employs the majority of CPAs. It could be argued that auditors view about the Code of Professional Conduct is different between local accounting firms and international accounting firms. Furthermore, this study is not a comparative study. The survey instrument for the Code of Professional Conduct was developed by the authors and needs further validation. The results of this study raise questions for further research. For example, examining the relationships between auditors ethical decision-making and the Code of Professional Conduct and firms ethical culture might be one area of interest. Another area would be to re-examine the two-factor model of the Code of Professional Conduct scale by undertaking a validation study in other locations.

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Appendix 1: Corporate ethical values scale (CEV) * 1. Managers in my firm often engage in behaviours that I consider to be unethical 2. In order to succeed in my firm, it is often necessary to compromise ones ethics 3. Top management in my firm has let it be known that unethical behaviours will not be tolerated 4. If a manager in my firm is discovered to have engaged in unethical behaviour that results primarily in personal gain (rather than firm gain), he or she will be promptly reprimanded 5. If a manager in my firm is discovered to have engaged in unethical behaviour that results in firm gain (rather than personal gain), he or she will be promptly reprimanded
* Measured on a seven-point (7) response scale from Strongly disagree (1) to Strongly agree (7). Source: Hunt et al, (1989)

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