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The well-known and widely publicized series of financial scandals have revealed that public trust was deeply eroded with regards to the public's perception of the audit process. The growing mistrust led to questioning the auditor's role as well as his contribution to the social warfare, since the auditor is perceived as an agent acting in the public interest. This raising concern prompted us to investigate within this study if and how the perceived ethics of auditors influence the trust bestowed on the profession by the wide public. The methodology we employed in our demarche consisted in a constructivist analysis and thus, this paper investigates if auditors’ ethics were compromised by conflicts of interest, which could have prevented them from acting as agents of trust. Results show that growing efforts the auditors display cast a positive gleam on public trust. Also, increased regulation, as well as communication between auditors and regulatory bodies are likely to have a positive effect on public trust. In conclusion, growing attention to ethics derives from higher attention to quality.
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P r o c e d i a - S o c i a l a n d B e h a v i o r a l S c i e n c e s 9 2 ( 2 0 1 3 ) 5 5 6 0
1877-0428 © 2013 The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license.
Selection and/or peer-review under responsibility of Lumen Research Center in Social and Humanistic Sciences, Asociatia Lumen.
doi: 10.1016/j.sbspro.2013.08.637
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Auditors’Ethics and their Impact on Public Trust
Alexandra Ardelean a *
aFaculty Of Economics and Business Administration, Cluj-Napoca, 400591, Romania
Abstract
The well-known and widely publicized series of financial scandals have revealed that public trust was deeply eroded with
regards to the public’s perception of the audit process. The growing mistrust led to questioning the auditor’s role as well as his
contribution to the social warfare, since the auditor is perceived as an agent acting in the public interest. This raising concern
prompted us to investigate within this study if and how the perceived ethics of auditors influence the trust bestowed on the
profession by the wide public. The methodology we employed in our demarche consisted in a constructivist analysis and thus,
this paper investigates if auditors’ ethics were compromised by conflicts of interest, which could have prevented them from
acting as agents of trust. Results show that growing efforts the auditors display cast a positive gleam on public trust. Also,
increased regulation, as well as communication between auditors and regulatory bodies are likely to have a positive effect on
public trust. In conclusion, growing attention to ethics derives from higher attention to quality.
©2013The Authors. Published by Elsevier Ltd.
Selection and/or peer-review under responsibility of Lumen Research Center in Social and Humanistic Sciences, Asociatia
Lumen.
Keywords: auditors’ ethics; public trust; agent of trust; public interes t; audit deontology.
1. Introduction
The auditing scandals have been the starting point of questioning the auditors’ ethics, affecting their
reputation. As a consequence, the trust the public placed in the accuracy of services provided by auditorswas
considerably impaired. Moreover, since audit relies heavily on trust and the fulfillment of fiduciary
responsibilities, the importance of ethical judgments for the profession is fundamental. The world’s largest
scandal, Enron, implicated auditors and led to the adoption of reinforced regulation, thus consolidating the belief
that auditors are supported to display an honorable behaviour in order to maintain reputation. Critics have arisen
*Corresponding author. Tel.: +4-072-121-4001;
E-mail address:ardeleanalexandra10@yahoo.com
Avai lab le on li ne at www.sciencedirect.com
© 2013 The Authors. Published by Elsevier Ltd. Open access under CC BY-NC-ND license.
Selection and/or peer-review under responsibility of Lumen Research Center in Social and Humanistic Sciences, Asociatia Lumen.
56 Alexandra Ardelean / Procedia - Social and Behavioral Sciences 92 ( 2013 ) 55 – 60
because it is not enough to focus on the accuracy and relevancy of financial data, but the auditors also need to
consider the broad impact of the audit report on third party beneficiaries in order to maintain public trust. Once
the trust of the stakeholders is altered, the restoration of that trust becomes the priority of the profession and of
the regulation bodies,because a perceived lack of commitment to the public interest may lead to a gap regarding
the public’s expectations from an audit.
The paper is structured into three sections: the first section presents the auditors’ legitimacy on the
market which is justified by their fiduciary responsibility to the public, the second section represents an analysis
of ethics in the audit profession, while the third section presents aspects regarding auditors’ accountability and the
importance the public trust holds for the work performed by auditors.
2. Methodology aspects
From a methodological point of view, our demarche is constructivist in nature because it starts by
presenting the auditors’ responsibility towards the public interest, to debate afterwards that an increased ethical
behaviour will contribute to the restoration of public trust, badly damaged as a consequence of audit failures.
Also, it is analytical because it explains how perceived auditor’s ethics have an impact on public trust.
This research paper was motivated by the importance of public trust for the legitimacy of the audit
profession. Following the financial scandals which implicated auditors ethics and their late reactions in revealing
the financial difficulties of audited clients or even audit failures, it appears that the public trust was negatively
affected by these incidents. Ethics being a fundamental component for the perception of auditors’ integrity and
objectivity in issuing an audit opinion, the present paper pleads for a reinforcement of ethics and morality among
auditors and a consideration of the public interest.
3. Auditors' role on the market and their legitimacy
The agency theory explains why the auditors’ commitment towards the wider public is perceived as
imperative to justify their position. The auditors act as an intermediary between the principals, the capital owners,
and the managers who run that capital, in the sense that auditors are overseeing the use which is given to the
investors’ capital.
The auditors’ legitimacy to act on behalf of the public has its foundation on moral grounds and their
logic of existence is confirmed by their accountability to all stakeholders interested by the audit report. This is the
reason why they are perceived as guardians of the public interest. In this position, the auditors protect the
interestsof a wide range of stakeholders and so they need to put their interests ahead of their own. Moreover, the
auditors’ fiduciary responsibility marks their legitimacy on the market with the aim to enhance the quality of the
financial report, portraying in a complete and honest way the company’s accounts. This is the reason why the
auditors, while performing their work, must avoid the pursuit of their personal interests. Thus, any conflict of
interest, which would affect professional judgement and compromise the ethics of the auditors, needs to be
neutralized so that the auditors gain in trustworthiness and act as agents of trust.
As stated above, the objective of the audit profession is to generate trust in the financial reporting and
thus to contribute to the economic sustainability. By auditing a company’s financial statements, the auditors
confer them credibility and trust. For this purpose, ethics play a crucial role in making sure that the auditors have
the same interests as the investors and other stakeholders and that their professional judgement is not weakened
by any pressure or incentive coming from the management of the client company. Auditors’ commercial interests
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Alexandra Ardelean / Procedia - Social and Behavioral Sciences 92 ( 2013 ) 55 – 60
and their public duty are separated by a thin line, the demarcation being operated by ethics, which playsa guiding
role in the midst of the particular accounting situations.
4. Ethics and their importance for the audit profession
The growing importance of ethics within the audit profession is due to the highly resonating financial
scandals which had a negative impact on the auditors. The consequence was that the auditors’ integrity and
morality were questioned by users of audit services. Moreover, reserves were expressed with regards to auditors’
legitimacy on the market, as their ethics appeared as having been compromised.
The etymology of the word ethics’ has its origin in the Greek word ethikos’ which means ’usage’ and
was much used by Aristotle to signify valuable fundamental convictions, while the word moralis’, the Latin root
for ’moral’, was established by Cicero to mean values growing from a complex body of beliefs. A definition of
the notion of ethics is issued by The Ethics Resource Center which presents it as being ’good and right behavior
and how people make those judgements’ (Ethics Toolkit). The notion of ethics comprises in itself the concepts of
integrity, honesty and responsibility. Thus, ethics are perceived by the wide public as a set of moral principles
and rules of conduct guiding the audit profession, a condition sine qua non of their legitimacy on the market.
The international authority entrusted with the regulation of ethics of the audit profession is IFAC
(International Federation of Accountants), whose declared scope is the protection of the public interest. In order
to achieve this objective, IFAC’s Code of Ethics stresses that the auditors’ responsibility is towards acting, in the
best way they can, in the public interest. While a code of ethics is a formal authority in determining the integrity
and objectivity of an audit opinion, elements such as culture and values are informal factors which impact the
audit decision. Even if studies such as Somers (2001) indicated that codes of ethics are not a dissuasive factor of
unethical behaviour among auditors, it is our belief that the enforcement of a code of ethics represents an
important element orienting the auditors towards impartial and moral behaviour.
The IFAC Code of Ethics specifies the fundamental principles to be respected by auditors and
accountants, namely: integrity, objectivity, professional competence and due care, confidentiality and
professional behaviour. Thus, integrity means that the auditor will be honest while performing an audit, the
objectivity relates to the absence of any conflict of interest which may impair his judgement, professional
competence implies an ongoing education, due care supposes that the auditor will comply with the audit
standards, while the principle of confidentiality means that the auditor will not divulge client information he
acquired during its work without authorization and finally, by maintaining a professional behaviour, the auditor
will avoid any conduct which is likely to harm the reputation of the entire profession, while behaving according
to laws and regulation. By establishing these ethics principles, IFAC as well as FEE (Fédération des Experts
Comptables Européens) have issued key guidelines for ethical audit procedures, pointing out the auditors’
accountability towards the public interest.
Ethics regulation may be perceived as an external constraint to behave ethically, because of the risk of
sanctions. When their behaviour is not dictated by ethical principles, but their actions are determined by concerns
linked to reputation or the unwelcomed possibility of litigious actions, the auditors may feel compelled to have an
ethical conduct. If the auditors are motivated in their ethical behaviour by an external coercing force, then they
don’t have a profound conscientiousness of their audit mission and might fall prey to cupidity and greed. The
ideals of the profession are oriented towards a high-standard ethical behaviour of auditors who will observe such
a conduct not because they feel pressed to obey the rules, but because they are aware of the value of the work
performed for the audit report beneficiaries.
58 Alexandra Ardelean / Procedia - Social and Behavioral Sciences 92 ( 2013 ) 55 – 60
Furthermore, Kohlberg’s model for the six stages of moral development, cited by Sadowski et al., (2012)
considers that high ethical principles are the ideal level a person may reach and it corresponds to the post
conventional stage of moral development. This level involves the recognition and understanding of the
profession’s responsibility to society, based on the greater good.
Figure 1. Author’s projection of the Kohlberg’s model of moral development as interpreted by Armstrong (1993)
Equally, Rest, cited by Lovett, B.J. et al. (2010) developed a model of cognitive moral decision making
that illustrates the manner in which auditors complete and carry out ethical decisions.An auditor is supposed to
have a strong sense of morality when confronted to the evaluation of an ethical dilemma or situation. Rest
identified four steps to ensure that actions are evaluated for their ethical value,the four steps being interrelated.
Figure.2.Author’s projection of the four components which form Rest’s model of moral decision-making
The model developed by Rest is eloquent to promote auditors’ moral behaviour and it determines the use
of moral judgement and ethics when auditors make professional judgements. One way to restore public trust with
59
Alexandra Ardelean / Procedia - Social and Behavioral Sciences 92 ( 2013 ) 55 – 60
regards to the audit profession is to encourage and determine auditors to use their professional judgement over
their personal interest.
It is acknowledged that an ethical conduct is essential when performing an audit in order to meet the
defining characteristics of the auditing profession which are trust, independence and integrity. The auditing
standards, along with the code of ethics, reflect ethical behaviour. Respecting the audit rules and standards is not
enough, while in fact legislation is a minimum to respect in the audit process. Often the rules need to be
interpreted and auditors find themselves is a need for reliance on good judgement (Cheffer and Pakaluk, 2007)
and so, professional awareness as well as respect of moral and ethical precepts are key in conducting an audit.
5. Auditors' accountability and public trust
Public trust represents the foundation of the auditors’ existence on the market and measures the degree
of confidence that different parties have in the services provided by the profession. It has been alleged that public
trust has registered a decline in recent years due to incidents of unethical behaviour within the profession. Since
the beneficiaries of the audit report are not only the stockholders or the investors, but include a wider range of
public,comprised of clients, suppliers, investors, credit institutions, government etc., it is only natural that the
public expects a certain level of performance from the audit profession. These expectations include reliability in
the audit report, which directly affects public confidence in business and investing. By acknowledging their
responsibility towards the community, the auditors recognize their accountability towards the society.
As stated before, the fundamental of auditors’ appointment was based on trust and it appears that public
trust legitimates the auditors’ position on the market. Trust means a belief in the honesty or reliability of a person.
The auditor, as the recipient of that confidence from the general public, has an obligation of moral and ethical
behaviour in order to meet the expectations bestowed on his work. Trust is a quality attached to the audit services
to the extent that the purpose of auditing financial statements may be lost when there is no trust among the public
(Duska and Duska, 2003). A lack of trust in the auditorss abilities to represent the public interest leads to
questioning his legitimacy. The fact that auditors have failed to draw attention on the ongoing financial problems
or questionable accounting practices, have fueled the public mistrust with regards to the audit profession.
Fig.3 Author’s projection of the auditors’ ethics impact on public trust
60 Alexandra Ardelean / Procedia - Social and Behavioral Sciences 92 ( 2013 ) 55 – 60
The auditors, through their privileged position, have been expected to act as trusting agents of the
community and draw attention on the financial difficulties of their audit client. Their failure to meet this
expectation, after the revelation of huge scandals, escalated into public mistrust with regards to the ability of the
audit profession to serve the public interests. Nevertheless, further regulation and a better observance of ethics by
auditors may determine the restoration of the public trust.
6. Conclusions
Audit failures have been relatively rare over time. However, the strong reactions in the face of the
financial scandals are explained by the fact that the public expects a firm moral behaviour from auditors,because
it associates an ethical conduct with the profession and condemns any failure in meeting with this expectation.
One of the reason of the enhancement of the attention for ethical behaviour was the fact that the
perception of the audit profession on its work has undergone some changes. Given the particularities of the audit
profession, the requirements for further ethics regulation appear as justified so that auditors continue to be
regarded as experts and benefit from the associated privileges like status or reputation. However, regulation alone
will not establish public trust, the auditors also need to observe a moral behaviour and to adequately interpret the
standards. Auditors must acknowledge their public and social duty as arising from core values. In conclusion,
higher moral standing and better ethics may be the answer to re-establishing public trust in the auditor profession.
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Armstrong, M.B. (1993). Ethics and professionalism in accounting education: A sample course. Journal of Accounting Education 11: pp. 77-
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Duska, Ronald F. and Duska, Brenda Shay (2003). Accounting Ethics.Blackwell Publishing
Ethics Toolkit. (n.d.). Retrieved 12th of March, 2013, from Ethics Resource Center: http://www.ethics.org/
Lovett, B.J. et al. (2010). Levels of moralisation: a new conception of moral sensitivity. Journal of Moral Education Vol. 39, No. 2, June
2010, pp. 175189
Rest, J. (1983).Morality, in: P. Mussen (Ed.) Handbook of child psychology (New York, Wiley), pp. 556-628
Sadowski, S. T. et al. (2012). Toward a Convergence of Global Ethics Standards: A Model from the Professional Field of Accountancy,
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Somers, Mark John (2001). Ethical Codes of Conduct and Organizational Context: A Study Between Codes of Conduct, Employee Behaviour
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Article
Article
After a brief literature review, this paper deals with four related topics: A discussion of how ethics should be taught in the accounting curriculum, a description of one sample course in accounting ethics and professionalism (E & P), a description of pre- and post-test results when such a course was offered to a treatment group and not to a control group, and implications of the research. The author advocates that ethics be taught both in existing accounting courses and in a separate course in accounting ethics and professionalism. The author further advocates that a “sandwich approach” be used, consisting of a general course in ethics taught elsewhere in the university, followed by a variety of accounting courses in which ease studies and homework problems help students spot ethical issues and reinforce the need for mature ethical reasoning, followed by a capstone course in ethics and professionalism taught by accounting faculty. The results of the pre- and post-tests of moral development indicate a significant increase in mean test scores of the treatment group over that of the control group. An analysis of an interactive effect indicates that the E & P course combined with previous classes in ethics is particularly effective in predicting moral-reasoning maturation.
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  • S T Sadowski
Sadowski, S. T. et al. (2012). Toward a Convergence of Global Ethics Standards: A Model from the Professional Field of Accountancy, International Journal of Business and Social Science Vol. 3 No. 9; May 2012
Accounting Ethics. Blackwell Publishing Ethics Toolkit. (n.d.). Retrieved 12th of
  • Ronald F Duska
  • Brenda Duska
  • Shay
  • B J Lovett
Duska, Ronald F. and Duska, Brenda Shay (2003). Accounting Ethics. Blackwell Publishing Ethics Toolkit. (n.d.). Retrieved 12th of March, 2013, from Ethics Resource Center: http://www.ethics.org/ Lovett, B.J. et al. (2010). Levels of moralisation: a new conception of moral sensitivity. Journal of Moral Education Vol. 39, No. 2, June 2010, pp. 175-189