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The Effects of Emotions on the Moral Judgments and Intentions of Accountants

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Unethical earnings management continues to exist. Pressures to meet analysts‟ expectations and to improve the bottom line are commonplace. While certain techniques are legal and ethical in managing earnings, it is easy to approach and descend the slippery slope between ethical and unethical behavior (Stice and Stice, 2006). For example, timing of advertising and other period costs to increase or decrease net income during a year is prudent and acceptable. But to make accounting changes without appropriate disclosures, to purposefully capitalize ordinary expenses, or to intentionally alter the year-end cutoff for purposes of managing earnings are violations of GAAP. The latter two actions, if there is harm, are fraudulent. Is it possible that reporting of wrongdoing may be avoided or decrease the effect of accounting scandals that resulted from inappropriate earnings management? A significant stream of research has used Rest‟s (1986) model of moral action (described below) to explore the ethical decision making of accountants. Coughlan and Connolly (2008) extended the Rest (1986) model, and addressed the role of emotions which were shown to be an important part of the decision process. Greenfield (2007) posits that “…emotional responses to moral issues and dilemmas often influence our moral sensitivity and moral judgment and often motivate moral behavior.” (2007, 15) We continue their research to explore the effects of emotions on moral judgment and intention to whistleblow using a sample of 220 professional accountants and four earnings management scenarios. We find that relief, satisfaction, and regret do have a certain effect on moral judgment, but not on whistleblowing intention. * The authors are, respectively, Professor of Accounting at Florida Southern College, and Professor of Accounting at King‟s College. Journal of Forensic & Investigative Accounting Vol. 7, Issue 1, January - June, 2015 147 The remainder of this paper is divided into the following four sections. The literature review section provides a theoretical foundation for the study, discussions on earnings management and emotions, and the hypotheses. The next section provides the methodology of the study. In the third section, the results are provided with discussion. The fourth section reports our conclusions, some of the limitations of the study, and suggestions for further research. The entire article can be downloaded at the Journal of Forensic & Investigative Accounting website at http://web.nacva.com/JFIA/Issues/JFIA-2015-1_6.pdf
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Journal of Forensic & Investigative Accounting
Vol. 7, Issue 1, January - June, 2015
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The Effects of Emotions on the Moral Judgments and Intentions of
Accountants
Lynn H. Clements
Tara J. Shawver*
Unethical earnings management continues to exist. Pressures to meet analysts‟
expectations and to improve the bottom line are commonplace. While certain techniques are
legal and ethical in managing earnings, it is easy to approach and descend the slippery slope
between ethical and unethical behavior (Stice and Stice, 2006). For example, timing of
advertising and other period costs to increase or decrease net income during a year is prudent and
acceptable. But to make accounting changes without appropriate disclosures, to purposefully
capitalize ordinary expenses, or to intentionally alter the year-end cutoff for purposes of
managing earnings are violations of GAAP. The latter two actions, if there is harm, are
fraudulent. Is it possible that reporting of wrongdoing may be avoided or decrease the effect of
accounting scandals that resulted from inappropriate earnings management?
A significant stream of research has used Rest‟s (1986) model of moral action (described
below) to explore the ethical decision making of accountants. Coughlan and Connolly (2008)
extended the Rest (1986) model, and addressed the role of emotions which were shown to be an
important part of the decision process. Greenfield (2007) posits that “…emotional responses to
moral issues and dilemmas often influence our moral sensitivity and moral judgment and often
motivate moral behavior.” (2007, 15) We continue their research to explore the effects of
emotions on moral judgment and intention to whistleblow using a sample of 220 professional
accountants and four earnings management scenarios. We find that relief, satisfaction, and regret
do have a certain effect on moral judgment, but not on whistleblowing intention.
* The authors are, respectively, Professor of Accounting at Florida Southern College, and Professor of Accounting at
King‟s College.
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The remainder of this paper is divided into the following four sections. The literature
review section provides a theoretical foundation for the study, discussions on earnings
management and emotions, and the hypotheses. The next section provides the methodology of
the study. In the third section, the results are provided with discussion. The fourth section reports
our conclusions, some of the limitations of the study, and suggestions for further research.
BACKGROUND AND HYPOTHESES
Ethical Decision-Making
Rest‟s Four Component Model of ethical decision-making (1986) describes a four step
process comprised of: (1) moral sensitivity, (2) moral judgment, (3) moral intentions, and (4)
moral behavior.
Moral sensitivity is the awareness that an ethical problem exists. An individual must first
identify that there is an ethical dilemma before a moral decision can be made (moral sensitivity).
According to the model, if an individual recognizes that a moral dilemma exists, there is the
potential to influence moral judgments, moral intentions and moral behavior.
A moral judgment occurs when a person evaluates whether actions are morally wrong or
morally right. Hundreds of studies show that moral judgment changes over time and with
education (Rest, 1986). Prior studies about the moral judgment of professional accountants are
mixed in their results. Some have found significant differences in levels of moral reasoning
(Ponemon 1992; Ponemon and Gabhart 1990) while others found no difference
(Abdolmohammadi and Ariail 2009; Bernardi and Arnold 2004; Scofield, Phillips, and Bailey
2004).
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The third step is moral intention: individuals evaluate an intention to act ethically or not.
Intention is based on an assessment of several factors, which may include available alternatives
and one‟s own values.
The fourth and final step is a person‟s engagement in a moral behavior. In this final step,
Rest posits that a person will choose to engage or not engage in moral behavior based upon his or
her own moral attributes and courage (Rest 1986). This study extends the ethical decision
making literature based upon Rest‟s model to instances of earnings management. We examine
four scenarios of potentially unethical behavior and the ethical decision to whistleblow by
professional accountants. Specifically, the study explores the effects of three emotions (relief,
satisfaction, and regret) on the moral judgments to whistleblow and the intention to whistleblow
by 220 professional accountants on these different cases of possible earnings management.
Earnings Management
Schipper (1989) states that earnings management is an intervention in the financial
reporting process with the intent of obtaining private gain. Clikeman describes earnings
management as “fraud‟s „innocent‟ little brother – and notes that it is often overlooked” (2003,
75). Clikeman further defines earnings management as “the practice of choosing accrual
estimates or timing operating decisions to move short-term earnings in a desired direction”
(2003, 75). This study recognizes that not all earnings management is unethical and/or
fraudulent. Rather, some earnings management is considered to be prudent in the course of
business. We have adopted the Stice and Stice definition of earnings management for this study,
“…a predictable tendency of managers to try to manipulate the reported numbers to be as
favorable as possible (2006, 341).”
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There are five levels of earnings management according to Stice and Stice (2006) which
form a continuum (Figure 1 below). The first level of earnings management, savvy transaction
timing, ensures that transactions are recognized in the most advantageous period. The second
level, aggressive accounting, involves changing accounting methods or estimates with full
disclosure, which is often perceived as legal and ethical. However, when accounting methods or
estimates are changed for the sole purpose of manipulating net income, there is potential for the
financial statements to misrepresent the company. Therefore, some actions classified as “level 2”
may, in fact, be unethical and even fraudulent. Deceptive accounting is the third level of
earnings management, and involves changes to methods or estimates with little or no disclosure.
The fourth level of earnings management is fraudulent reporting, also referred to as “non-GAAP
accounting.” This reporting is not to be confused with reporting on other bases of accounting
(OCBOA), but is construed as reporting in accordance with GAAP while, in fact, GAAP has
been violated. Fraud (fictitious transactions) makes up the fifth level of earnings management.
Stice and Stice clearly explain that not all levels of earnings management are fraudulent.
Parfet (2000) makes a distinction between “good and “bad” earnings management. According to
Parfet, the good kind of earnings management includes “reasonable and proper practices that are
part of operating a well-managed business and delivering value to shareholder…[and] is the
everyday process of running a business in a well-managed way..." (2000, 485). On the other
hand, Parfet calls bad earnings management “improper earnings management‟ that is
characterized by “intervening to hide real operating performance by creating artificial accounting
entries or stretching estimates beyond a point of reasonableness.” (2000, 485). At its worst, bad
earnings management is fraud, and fraud involves intent. Actions in the last two levels on the
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Stice and Stice continuum are fraudulent. Therefore, a definition of fraud is needed for this
study.
A plethora of definitions of fraud are included in Crumbley, Heitger, and Smith (2011, 4-
3). A recent fraud definition has been sponsored by the AICPA, IIA, and ACFE: “Fraud is any
intentional act or omission designed to deceive others, resulting in the victim suffering a loss
and/or the perpetrator achieving a gain” (AICPA 2008). We utilize this definition in our paper.
Therefore, a fraudulent behavior has the following components: (1) intent to deceive, (2) a
victim, and (3) a loss by the victim OR a gain by the perpetrator. The participants in this study
were not instructed as to whether or not there was intent, a victim, and/or a gain or loss to be
incurred if the action was taken. Instead, the participants were asked certain questions (please
refer to Appendix A) and their own inferences were made as to the possible results of a particular
action.
Moving from one level of earnings management to the next may be a “slippery slope” –
and one that can be difficult to reverse (Clikeman 2003). Several frauds began as small earnings
manipulations that eroded (Prentice 2007). Also, time may be a factor in moving from one level
to another. Gino and Bazerman (2009) found that the element of time affects this slippery slope,
as the acceptability of earnings management increases over time because the consequences are
not immediately recognized. Determining when a behavior crosses the line from legitimate to
fraudulent can be hard to distinguish.
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Figure 1 Stice and Stice Continuum
The pressures to manage earnings include (1) meeting analysts‟ expectations (Burgstahler
and Eames 2006; Kasnik 1999), (2) anticipating a merger or buyout (DeAngelo 1988), (3)
anticipating a company‟s first public offering (Teoh, Welch, and Wong 1998a), (4) preparing to
make equity offers (Teoh, Welch, and Wong 1998b), (5) negotiating stock-financed acquisitions
(Erickson and Wang 1999), (6) attempting to meet investor expectations (Bushee 1998), (7)
income smoothing (Clikeman 2003), (8) meeting contractual obligations (Clikeman 2003), and
(9) influencing the actions of government regulators (Clikeman 2003).
Managing earnings may take many forms. One common earnings management technique
is the adjusting of accruals (Teoh, Welch, and Wong 1998a; Beaver, Eger, Ryan, and Wolfson
1989; Petroni 1992; Visvanathan 1998). A particular type of accrual adjustment is the period‟s
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bad debt expenses, which has been explored by Yoon, Miller, and Jiraporn (2006); Peasnell,
Pope, and Young (2000); McNichols and Wilson (1988); and Clements and Shawver (2011).
This paper extends earnings management research by considering whether the emotions
of relief, satisfaction and regret affect moral judgment to whistleblow and the intention to
whistleblow in situations of potentially unethical behavior. The methodology includes four
vignettes describing earnings management (included as Appendix A), one vignette for each of
the last four levels of the continuum suggested by Stice and Stice (2006). The level two vignette
concerns inventory obsolescence. The subject of the level three vignette is a change in the
method of depreciation. The level four vignette focuses on inappropriate capitalization of
expenses. The level five vignette includes concealing customer returns. Because level one is
neither unethical nor fraudulent, we did not include a vignette for that first level.
Sadly, unethical behavior may be observed but not reported, which may allow the effects
to increase in magnitude. However, when unethical earnings management is reported and
discontinued, it is conceivable that the effects of those behaviors may be reduced before the
company suffers terminal loss. In order to report those unethical reactions, Rest‟s model
suggests that the behavior must first be recognized as an ethical problem (moral sensitivity). The
second step involves evaluating whether one should complete the action (moral judgment).
Then, the observer must evaluate whether or not to blow the whistle on the perceived unethical
behavior (intention). Lastly, the observer may blow the whistle and report the wrongdoing
(engagement). This study focuses on the second and third steps in the Rest model: ethical
evaluations (“should you blow the whistle?”) and whistleblowing (“would you blow the
whistle?”.
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Ethical Evaluations and Whistleblowing
There are several definitions that describe whistleblowing and whistleblowers.
Whistleblowers “sound an alarm from within the very organization in which they work, aiming
to spotlight neglect or abuses that threaten the public interests” (Bok 1980, 277). Alford (2001,
402) considers whistleblowers to be good examples of people who have “acted ethically.”
According to Hersch (2002, 243), “Whistleblowing involves the deliberate disclosure of
information about non-trivial activities which are believed to be dangerous, illegal, unethical,
discriminatory or to otherwise involve wrongdoing, generally by current or former organisation
members.” The definition of whistleblowing by Miceli and Near is, “the disclosure by
organizational members of illegal, immoral, or illegitimate organizational acts or omissions to
parties who can take action to correct the wrongdoing” (Miceli and Near 1992, xv). Other
definitions exist, most of which include some type of reporting of questionable morality or
wrongdoing.
Some prior research has focused on the whistleblower (i.e., the characteristics of one who
will blow the whistle) and the motivation to blow the whistle (Miceli and Near 1984; Miceli,
Roach, and Near 1988; Alpern 1982; Pletta 1986; Ahern and McDonald 2002; and others).
Another stream of research focuses on “effective whistleblowing.” For example, Near and
Miceli (1995) propose five factors that influence the termination of wrongdoing, including the
characteristics of the whistleblower, the characteristics of the complaint recipient, the
characteristics of the wrongdoer, the characteristics of the wrongdoing, and the characteristics of
the organization.
Blowing the whistle on accounting fraud usually does not involve life or death, but may
have a significant disastrous effect on a company‟s financial health. Oftentimes, it is the
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professional accountants who observe unethical behaviors, and are faced with the decision to
report the wrongdoing. CPAs “have a continuing responsibility to cooperate with each other to
improve the art of accounting, maintain the public's confidence, and carry out the profession's
special responsibilities for self-governance” (AICPA 1997). Also, members of the IMA are
expected to behave ethically and commit to ethical professional practice and to “discuss the issue
with [the] immediate supervisor except when it appears that the supervisor is involved” (IMA).
There is a stream of whistleblowing research in the area of accounting (Xu and Ziegenfuss 2003;
Dozier and Miceli 1985; Miceli and Near 1991; Shawver 2009; Shawver and Clements 2012;
Clements and Shawver 2011; and others) and this study contributes to that literature.
Emotions
According to Callahan (1988, 10), emotions are “distinctly patterned human experiences
that, when consciously felt produce qualitatively distinct subjective feelings and
redispositions….Emotions and thinking are, in sum, complementary, synergistic, parallel
processes, constantly blending and interacting as a person functions.”
Emotions affect ethical decision-making (Gaudine and Thorne 2001; Klein 2002), shape
the choices of individuals (Gilbert and Wilson 2000; Mellers, Schwartz, and Ritov 1999), have
powerful effects on choice (Mellers, Schwartz, and Ritov 1999), and affect the real and
anticipated emotions of decision-makers (Brief and Weiss 2002; Cacioppo and Gardner 1999).
Mellers, Schwartz, and Ritov articulated two influences of emotions, “experienced emotions”
and “anticipated emotions” (1999, 332). Experienced emotions were found to affect many levels
of cognitive processing, and anticipated emotions were found to prepare us for the future (1999,
332). The importance of emotions in ethical decision-making has been reported by Baron
(1992), Mellers and McGraw (2001) and Klein (2002).
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Emotions and Rest’s (1986) Model of Ethical Decision Making
Guadine and Thorne (2001) were among the first to explore whether emotions influence
the ethical decision process. They published a cognitive-affective model of ethical decision-
making which posits that two dimensions of emotion (feeling state and arousal) influence each of
the four components of Rest‟s (1986) model of moral action. Of the seven propositions stated by
Guadine and Thorne, the fourth and fifth propositions relate to moral judgment (step two of the
Rest model) and the sixth proposition relates to intention (step three of the Rest model). The
fourth proposition states, “Arousal is positively associated with an individual‟s tendency to
formulate a prescriptive judgment consistent with his or her level or moral development.” The
fifth proposition states, “Positive affect is positively associated with an individual's tendency to
formulate a prescriptive judgment at a level of moral reasoning consistent with his or her level of
moral development.” (Guadine and Thorne 2001, 181) Their sixth proposition states that,
“Positive affect increases an individual's tendency to select an ethical decision choice consistent
with his or her prescriptive judgment.” (Guadine and Thorne 2001, 182) This current study
extends the work of Guadine and Thorne by exploring certain emotions (regret, relief, and
satisfaction) and their effects on the decision-making process (Rest‟s second and third steps, and
Gaudine and Thorne‟s fourth, fifth, and sixth propositions.)
Using the Rest (1986) model, Greenfield (2007) reported that the role of emotions affects
ethical decision making in certain moral dilemmas. He reported that “all emotions are responses
to perceived changes, threats, and opportunities that may alert us to a moral issue” for a selected
group of physical therapists (2007, 15).
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Relief, Satisfaction and Regret
The emotion of relief was explored by Sweeny and Vohs (2012). They posit two distinct
situations: the narrow avoidance of an aversive outcome (near-miss relief) and completion of an
onerous or aversive event (task-completion relief). Their findings suggest that near-miss relief
prompts people to contemplate how to avert similar future experiences, and that task-completion
relief serves to reinforce endurance during difficult tasks (2012, 169). We therefore propose the
following hypotheses:
H1a: A professional accountant will feel relief when making a moral judgment to report
the action.
H2a: A professional accountant will feel relief when intending to report the action.
Decisions are affected by the satisfaction expected after a decision is made according to
Oliver (1997). There are few empirical studies in business ethics which have included measures
of expected satisfaction with possible outcomes. Although Coughlan and Connolly suggested
that the role of anticipated satisfaction should not be ignored, they were not able to support the
hypothesis that the emotion of satisfaction affected the decision to choose an ethical alternative
(2008, 350). Shawver and Clements (2012) were unable to find support that satisfaction affects
ethical evaluations. We therefore propose the following hypotheses:
H1b: A professional accountant will feel satisfaction when making a moral judgment to
report the action.
H2b: A professional accountant will feel satisfaction when intending to report
the action.
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The emotion of regret has been explored in a variety of settings. Fredin studied students
in a 2 x 2 x 2 between-subjects experiment designed to test a variety of hypotheses. Fredin
(2011) explored how one‟s predicted regret may differ between blowing the whistle or staying
silent and found that “individuals think about regret differently in a whistleblowing context as
opposed to a silent observer context.” (2011, 404) Jurasova and Spajdel found that regret
emerges from the single act of decision making rather than from the type of inference which
precedes the choice, and that the intensity of regret decreases with passing time (2011, 169).
Reb and Connolly (2010) found support that there was greater anticipated regret when the action
was abnormal (as opposed to normal), and that there is a mediating effect with perceived
justifiability. They also found that anticipated regret was higher for careless (as opposed to
careful) decisions. We therefore propose the following hypotheses:
H1c: A professional accountant will not feel regret when making a moral judgment to
report the action.
H2c: A professional accountant will not feel regret when intending to report the action.
Coughlan and Connolly (2008) examined the effects of justification and three emotions,
relief, satisfaction, and regret on hypothetical decision situations. They found “that both the
anticipated emotions associated with choosing each option and the judged relevance of particular
justifications to each specific situation help shape the choices made by individuals facing ethical
dilemmas. “(2008, 354) Coughlan and Connolly (2008) found that anticipated emotions of relief
and regret (but not satisfaction) were associated with choosing between options and the
perceived relevance of each option‟s justifications affect the choices business students make
when facing ethical dilemmas (2008, 354). This study extends their study (which used business
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students) by exploring the emotions of relief, satisfaction and regret on the ethical decision-
making decisions of professional accountants.
Shawver and Clements (2012) found support that accountants feel regret when choosing an
unethical decision alternative. This study extends the Shawver and Clements (2012) research on
the emotion of regret and adds the emotions of relief and satisfaction.
RESEARCH METHOD
Measuring the Variables
Accounting professionals attending state society-sponsored continuing education classes
in Florida were invited to participate in this pencil-and-paper study completed during the
refreshment breaks of the continuing education sessions. Any professional who completed the
survey was entered into a drawing for a small financial prize valued at $25. There were 1,127
attendees, of which 220 agreed to participate (a 20% response rate). Included in the survey were
demographic questions, and 71% of the participants identified themselves as male, 74% as older
than 50, and 82% as accountants. Nearly half (49%) of the participants had fewer than 30 years
of experience, and the remainder had 30 years of experience or more. The majority of
participants (62%) had between 20 and 39 years of experience. Table I includes the
demographic information for gender, age and experience.
[Insert Table I here]
The Stice and Stice Earnings Management Continuum (2006, 348-349) was selected as
the basis for the various vignettes in the survey. The Continuum was chosen due to its concise
nature (i.e., there are only five discrete levels of earnings management) and the fact that it is
comprehensive (i.e., it begins with ethical earnings management and ends with the most
egregious form of fraudulent earnings management.)
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One vignette was developed to correspond to each of the Stice and Stice (2006) earnings
management levels 2, 3, 4, and 5. Vignette 1 focuses on managing earnings by manipulating the
inventory obsolescence adjustment. Because it includes the wording, “and provided justification
and disclosure for the change,” it corresponds to the Stice and Stice continuum level 2 (2006,
348). Vignette 2 is focused on managing earnings by manipulating depreciation expense by
changing the depreciation method and increasing the useful life of production machinery. The
wording, “without providing additional justification or disclosure for the change” was included
to classify this action in level 3 of the Stice and Stice continuum (2006, 348.) Vignette 3 focuses
on capitalizing expenses for routine maintenance of production machinery, which is a clear
violation of GAAP resulting in fraudulent reporting and therefore is an action classified in the
Stice and Stice continuum level 4 (2006, 349). Vignette 4 is focused on managing earnings by
recording customer returns in the period subsequent to occurrence, and corresponds to the Stice
and Stice continuum level 5 (2006, 349).
Each participant received either vignettes 2 and 4 (inventory obsolescence and
capitalization of expenses, respectively) or vignettes 3 and 5 (changing depreciation methods and
ignoring customer returns, respectively). Since the survey was completed during a scheduled
break in the continuing education program, the participants were not asked to evaluate all four
scenarios. We were concerned that there would not be sufficient time to complete the survey.
Appendix A presents the four vignettes. In addition to demographic questions, each vignette was
followed by a series of questions, and the same questions were asked for each vignette.
Appendix B presents the group of statements about each vignette used in this study, with
classification as to the independent and dependent variables. The questions utilized a 7-point
Likert scale rated from 1, “strongly disagree,” to 7, “strongly agree.”
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There were two dependent variables in the study: moral judgment to whistleblow
(“should blow the whistle”) and intention to whistleblow (“would blow the whistle”). Each
participant was asked to evaluate moral judgment to whistleblow by responding to, “The staff
accountant in the scenario should report this request.” Each participant was also asked to
evaluate intention to whistleblow on the wrongdoing by responding to, “Most staff accountants
would report the request made by the controller.” As the scenarios change by level in the Stice
and Stice (2006) continuum, the action is expected to be seen as more unethical and, therefore,
more likely that it should be reported, and more likely to be reported (with responses closer to 1).
There were also three independent variables, one for each of the three emotions studied. The
participants were asked the following questions: (1) “Most staff accountants would feel relief if
they reported this action”, (2) “Most staff accountants would feel satisfaction if they reported this
action”, and (3) “Most staff accountants would feel regret if they reported this action.”
Since social desirability response bias is a concern when evaluating ethical dilemmas,
these five statements were worded in the third person. The means and standard deviations for
all variables used in this study are provided for each level in Tables II and III.
[Insert Tables II and III here]
RESULTS AND DISCUSSION
Table II presents the sample statistics (the means and the standard deviations) for the
variables in this study. As the level of earnings management increases, this sample of
professional accountants indicates that each action should be reported (with responses increasing
closer to 7). Responses also indicate that most professional accountants would report the request
as the action moves higher on the Stice and Stice earning management continuum (with
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responses increasing closer to 7). For the emotions variables, as the level of earnings
management increases, relief and satisfaction increase while regret decreases. Results of
MANOVA tests shown in Table 2 reveal that the means of each of the variables are statistically
different between scenarios, indicating that the type of earnings management will influence the
perceived importance of emotions on the ethical decision-making process.
In Table III, we report the correlation matrix for the two dependent variables (moral
judgment to whistleblow and intention to whistleblow) and the three independent variables
(relief, satisfaction, regret) used in this study. An increase in the relief and satisfaction variables
correlates to an increase in the moral judgment and intention to whistleblow variables while an
increase in regret corresponds to a decrease in moral judgment and intention to whistleblow, as
shown in the negative correlations.
In every level from 2 to 5, moral judgment to whistleblow is correlated to the emotions of
relief, satisfaction, and regret. In levels 3 and 5, moral judgment to whistleblow is correlated to
the emotions of relief and satisfaction. These correlations of moral judgment and intention to
whistleblow with the emotions of relief, satisfaction and regret are consistent with prior
suggestions that emotions affect ethical decision-making (Gaudine and Thorne 2001; Klein
2002),
H1a, H1b, and H1c
Table IV presents the results of the regression analyses of the independent variables of
relief, satisfaction, and regret upon our first dependent variable, moral judgment. The table is
arranged by the four vignettes, one for each of the last four levels of the Stice and Stice (2006)
Continuum, as presented above. Appendix A provides the vignettes, which focus on inventory
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obsolescence (Level 2), change in depreciation method (Level 3), capitalization of routine
expenses (Level 4), and improperly postponing the reporting of customer returns (Level 5).
Relief is significant at the 0.05 level for the Level 2 and Level 5 vignettes. Satisfaction is
significant at the 0.05 level for the vignettes of Levels 2, 3, and 5. Regret is significant at the
0.01 level for vignette Level 2, and at the 0.05 level for vignette Level 3. Therefore, H1a, H1b,
and H1c are partially supported. These professional accountants have indicated they will feel
relief for two of the vignette situations (Levels 2 and 5) when making a moral judgment to report
the action. They also have indicated they will feel satisfaction in three of the vignette situations
when making a moral judgment to report the action (all except Level 3). Finally, they indicated
they will feel regret when making a moral judgment to report the actions in vignettes 1 and 2,
which is not surprising since these actions are at the lowest levels of earnings management. In
fact, vignette 1 (Level 2) represents an ethical and, most likely, a common practice, which
explains the high (0.01) level of significance and negative t-value for regret if the action were to
be reported. Professional accountants would strongly regret the reporting of this Level 2
situation. There is no evidence that these professional accountants would feel regret for the
reporting of earnings management at the higher levels of unethical behavior (Levels 4 and 5).
Table V presents the results of the regression analyses of the independent variables of
relief, satisfaction, and regret upon our second dependent variable, intention to whistleblow. The
table is again arranged by the vignettes. Only the satisfaction variable is significant, at the 0.05
level, and only for the second vignette of Level 3. Therefore, neither H2a nor H2c are supported,
and there is limited support of H2b. With one exception, the professional accountants would not
feel relief, satisfaction, or regret if the intention was to blow the whistle on these four actions.
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That one exception is a feeling of satisfaction from the intention to whistleblow about a change
in depreciation method without disclosures (the Level 3 vignette).
[Insert Table V here]
There are at least four significant observations. First, these professional accountants
indicate that their peers would feel relief and satisfaction in reporting certain earnings
management requests. Second, the same accountants indicate that their peers would regret
reporting certain earnings management actions for aggressive accounting and deceptive
accounting (Levels 2 and 3) but there would not be regret in the reporting of fraudulent reporting
or fraud (Levels 4 and 5). Third, the emotions of relief, satisfaction, and regret were not
significant in the capitalization of expenses vignette (Level 4) for either moral judgment or for
intention to whistleblow. One possible explanation is that there were two different groups of
professional accountants who took the surveys, and different participants took the surveys for the
vignettes for Level 4 and Level 5. Fourth, a most interesting observation can be made by
comparing the results of Tables IV and V: these three emotions do in fact affect moral judgment,
but do not impact the intention to whistleblow.
To investigate these hypotheses further, Table VI presents several multivariate multiple
regression analyses. Multivariate regression estimates a single regression model with multiple
dependent variables (moral judgment to whistleblow and intention to whistleblow) and one or
more predictor variables (relief, satisfaction, regret). The results of the multivariate regression
analysis are similar to previously presented tables and analyses. Generally, the emotions
examined in this study have more of an impact on moral judgments to whistleblow than they do
on intentions to whistleblow. It is possible that emotion incrementally explains moral judgments
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164
to whistleblow while other factors may become important when considering whistleblowing
intentions.
[Insert Table VI here]
LIMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH
This study contributes to the literature by exploring the effects of three emotions (relief,
satisfaction, and regret) upon certain earnings management situations at four of the five levels in
the Stice and Stice (2006) Continuum. However, several limitations are noted. First, accounting
professionals may respond differently to the way in which they responded in this survey when
confronted with similar problems in a business environment. Secondly, this sample of
professional accountants may not represent all accountants, especially since the participants
include a significant number of males over the age of 50. Thirdly, the third vignette (Level 4)
did not provide results comparable to the other three vignettes. Fourthly, there were two
different groups of participants, and only half of the participants answered questions about each
of the vignettes. A fifth limitation is that we did not randomize the vignettes when administering
the survey.
Therefore, future research may wish to attempt to increase the sample size, sample a
different geographic area (e.g., different states), consider different situations (vignettes) that
might impact ethical evaluations, evaluate different emotions than were considered in this study,
randomize the vignettes and consider additional factors that may impact intentions to
whistleblow.
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CONCLUSIONS
We asked professional accountants to evaluate several situations using the Rest Four
Component Model of ethical decision-making (1986) to investigate whether certain emotions
affect the evaluation of accounting situations involving earnings manipulations and the reporting
of those potentially unethical actions. This study provides evidence that the moral judgment to
report certain unethical actions provides relief and satisfaction. Second, we find that there is a
feeling of regret in deciding to report earnings management that is not absolutely unethical.
Third, we find no evidence that there is relief or regret from the intention to whistleblow on
earnings management, and very limited evidence that there is satisfaction from the intention to
whistleblow. Therefore, relief, satisfaction, and regret do have a certain effect moral judgment,
but not on whistleblowing intention.
Appendix A Vignettes
Level 2
A staff accountant prepared the annual schedule of estimated inventory obsolescence and sent it to the
controller for approval. The controller asked that the staff accountant reduce the estimate and provided
justification and disclosure for the change. The adjustment will result in a 2% increase in reported net
income, which allows this publically traded company to reach expected financial targets. The staff
accountant agreed to make the adjustment.
Level 3
A staff accountant prepared a schedule to calculate depreciation on production machinery and sent it to
the controller for approval. The controller asked that the accountant change the depreciation method and
increase the useful life of the production machinery without providing additional justification or
disclosure for the change. The adjustment would result in a 3% increase in reported net income for this
publically traded company. The accountant agreed to make the adjustment.
Level 4
A staff accountant prepared the preliminary financial statements for the fourth quarter and sent it to the
controller for approval. After review, the controller asked the staff accountant to capitalize expenses for
routine maintenance of production machinery. In the past, these costs were expensed. The adjustment
would increase net income by 4% for this publically traded company. The accountant agreed to make the
adjustment.
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Level 5
A staff accountant prepared the preliminary financial statements for the fourth quarter and sent it to the
controller for approval. After review, the controller asked that the accountant ignore all customer returns
received during the last week of the fourth quarter in order to increase reported net income by 5%. The
accountant agreed to make adjustments to the financial statements and record these transactions in the
first quarter of the next year.
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Appendix B Sample Survey, Selected Questions and Variables
Vignette 1a
A staff accountant prepared the annual schedule of estimated inventory obsolescence and sent it to the controller for
approval. The controller asked that the staff accountant reduce the estimate and provided justification and disclosure
for the change. The adjustment will result in a 2% increase in reported net income, which allows this publically
traded company to reach expected financial targets. The staff accountant agreed to make the adjustment.
Please indicate how strongly you agree or disagree with the following statements by circling one answer for each of
the following statements using the following scale:
Strongly Disagree 1 2 3 4 5 6 7 Strongly Agree
The staff accountant in the scenario should report this request.* (MJ) 1 2 3 4 5 6 7
Most staff accountants would report the request made by the controller.* (WH) 1 2 3 4 5 6 7
Most staff accountants would feel relief if they reported this action. ** (RL) 1 2 3 4 5 6 7
Most staff accountants would feel satisfaction if they reported this action. ** (S) 1 2 3 4 5 6 7
Most staff accountants would feel regret if they reported this action. ** (RG) 1 2 3 4 5 6 7
*Dependent variables = Moral Judgment to Whistleblow (MJ), Intention to Whistleblow (WH)
**Independent variables = Relief from whistleblowing (RL), Satisfaction from whistleblowing (S), Regret from whistleblowing (RG)
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TABLE I
Demographics
Panel A: Gender of Participants
Gender
Number of
Participants
Female
62
Male
157
Prefer Not to Answer
1
Total
220
Panel B: Age of Participants
Age
Number of
Participants
20-29
4
30-39
12
40-49
41
50-59
89
60-69
74
Total
220
Panel C: Experience of Participants
Experience in Years
Number of
Participants
0 10
21
11-19
24
20-29
62
30-39
75
40-49
30
50-59
7
Blank
1
Total
220
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Variable Mean Std. Dev. Mean Std. Dev. Mean Std. Dev. Mean Std. Dev. F-stat Sig
Moral Judgment to Whistleblow 4.784 1.956 4.924 1.856 5.705 1.525 5.676 1.652 7.435 .000
Whistleblowing Intention 3.337 1.616 3.547 1.595 3.864 1.669 4.205 1.606 5.629 .000
Relief 4.528 1.645 4.372 1.598 5.352 1.241 4.885 1.608 7.528 .000
Satisfaction 4.584 1.573 4.339 1.563 5.125 1.239 4.884 1.643 5.102 .000
Regret 4.472 1.531 3.339 1.464 3.398 1.369 3.807 3.269 5.427 .000
TABLE 2
Sample Statistics
Level 2 Variables
Level 3 Variables
Level 4 Variables
Level 5 Variables
(n = 88)
(n = 119)
(n = 88)
(n = 111)
MANOVA
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Panel A: Correlations Moral Judgment Intention Relief Satisfaction Regret
Moral Judgment to Whistleblow 1.000
Intention to Whistleblow 0.209* 1.000
Relief 0.497** 0.020 1.000
Satisfaction 0.504** -0.042 0.706** 1.000
Regret -0.447** -0.138 -0.163 -0.181 1.000
Panel B: Correlations Moral Judgment Intention Relief Satisfaction Regret
Moral Judgment to Whistleblow 1.000
Intention to Whistleblow 0.411** 1.000
Relief 0.398** 0.261** 1.000
Satisfaction 0.419** 0.318** 0.760** 1.000
Regret 0.229* 0.088 0.063 0.026 1.000
Panel C: Correlations Moral Judgment Intention Relief Satisfaction Regret
Moral Judgment to Whistleblow 1.000
Intention to Whistleblow 0.178 1.000
Relief 0.286** 0.195 1.000
Satisfaction 0.227* 0.114 0.770** 1.000
Regret (0.059) (0.006) (0.192) (0.172) 1.000
Panel D: Correlations Moral Judgment Intention Relief Satisfaction Regret
Moral Judgment to Whistleblow 1.000
Intention to Whistleblow 0.505** 1.000
Relief 0.611** 0.465** 1.000
Satisfaction 0.594** 0.443** 0.848** 1.000
Regret 0.109 (0.003) 0.083 0.088 1.000
**Correlation is significant at the 0.01 level (2-tailed).
*Correlation is significant at the 0.05 level (2-tailed).
TABLE III
Correlation Matrix
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Panel A: Vignette with Level 2 Stice and Stice Continuum
Variable t-value Significance
Relief 2.214 0.030 *
Satisfaction 1.996 0.049 *
Regret (4.266) 0.000 **
Adj. R2 = .396
Panel B: Vignette with Level 3 Stice and Stice Continuum
Variable t-value Significance
Relief 1.040 0.301
Satisfaction 2.307 0.023 *
Regret 2.552 0.012 *
Adj. R2 = .211
Panel C: Vignette with Level 4 Stice and Stice Continuum
Variable t-value Significance
Relief 1.667 0.099
Satisfaction 0.088 0.930
Regret (0.034) 0.973
Adj. R2 = .049
Panel D: Vignette with Level 5 Stice and Stice Continuum
Variable t-value Significance
Relief 2.202 0.030 *
Satisfaction 2.285 0.024 *
Regret 0.700 0.485
Adj. R2 = .367
*Correlation is significant at the 0.05 level (2-tailed).
**Correlation is significant at the 0.01 level (2-tailed).
TABLE IV
Effects of Emotions on Moral Judgment to Whistleblow
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Panel A: Vignette with Level 2 Stice and Stice Continuum
Variable t-value Significance
Relief 0.587 0.559
Satisfaction (0.867) 0.388
Regret (1.357) 0.178
Adj. R2 = (.007)
Panel B: Vignette with Level 3 Stice and Stice Continuum
Variable t-value Significance
Relief 0.272 0.786
Satisfaction 2.117 0.036 *
Regret 0.951 0.344
Adj. R2 = .086
Panel C: Vignette with Level 4 Stice and Stice Continuum
Variable t-value Significance
Relief 1.601 0.113
Satisfaction (0.527) 0.599
Regret 0.278 0.782
Adj. R2 = .008
Panel D: Vignette with Level 5 Stice and Stice Continuum
Variable t-value Significance
Relief 1.471 0.144
Satisfaction 1.534 0.128
Regret (0.601) 0.549
Adj. R2 = .193
*Correlation is significant at the 0.05 level (2-tailed).
**Correlation is significant at the 0.01 level (2-tailed).
TABLE V
Effects of Emotions on Intention to Whistleblow
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Panel A: Vignette with Level 2 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 1.863 0.111
Satisfaction 2.116 0.073
Regret 6.409 0.000 **
Adj. R2 = .495
Dependent Variable: Whistleblowing Intention F Significance
Relief 0.705 0.647
Satisfaction 0.712 0.642
Regret 0.733 0.626
Adj. R2 = .026
Panel B: Vignette with Level 3 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 0.647 0.692
Satisfaction 2.356 0.041 *
Regret 2.044 0.072
Adj. R2 = .263
Dependent Variable: Whistleblowing Intention F Significance
Relief 2.503 0.031 *
Satisfaction 3.825 0.003 *
Regret 1.479 0.200
Adj. R2 = .362
Panel C: Vignette with Level 4 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 2.959 0.028 *
Satisfaction 0.318 0.865
Regret 1.060 0.398
Adj. R2 = .162
Dependent Variable: Whistleblowing Intention F Significance
Relief 0.824 0.516
Satisfaction 0.325 0.860
Regret 0.547 0.770
Adj. R2 = .045
Panel D: Vignette with Level 5 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 1.926 0.102
Satisfaction 2.382 0.048 *
Regret 1.511 0.180
Adj. R2 = .646
Dependent Variable: Whistleblowing Intention F Significance
Relief 1.014 0.417
Satisfaction 1.509 0.200
Regret 0.822 0.573
Adj. R2 = .197
TABLE VII
Multivariate Multiple Regression
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Panel A: Vignette with Level 2 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 1.863 0.111
Satisfaction 2.116 0.073
Regret 6.409 0.000 **
Adj. R2 = .495
Dependent Variable: Whistleblowing Intention F Significance
Relief 0.705 0.647
Satisfaction 0.712 0.642
Regret 0.733 0.626
Adj. R2 = .026
Panel B: Vignette with Level 3 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 0.647 0.692
Satisfaction 2.356 0.041 *
Regret 2.044 0.072
Adj. R2 = .263
Dependent Variable: Whistleblowing Intention F Significance
Relief 2.503 0.031 *
Satisfaction 3.825 0.003 *
Regret 1.479 0.200
Adj. R2 = .362
Panel C: Vignette with Level 4 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 2.959 0.028 *
Satisfaction 0.318 0.865
Regret 1.060 0.398
Adj. R2 = .162
Dependent Variable: Whistleblowing Intention F Significance
Relief 0.824 0.516
Satisfaction 0.325 0.860
Regret 0.547 0.770
Adj. R2 = .045
Panel D: Vignette with Level 5 Stice and Stice Continuum
Dependent Variable: Judgment to Whistleblow F Significance
Relief 1.926 0.102
Satisfaction 2.382 0.048 *
Regret 1.511 0.180
Adj. R2 = .646
Dependent Variable: Whistleblowing Intention F Significance
Relief 1.014 0.417
Satisfaction 1.509 0.200
Regret 0.822 0.573
Adj. R2 = .197
TABLE VI
Multivariate Multiple Regression
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... Meanwhile, emotions are high-intensity feelings that are triggered by certain internal or external stimuli. Unfortunately, Clements and Shawver (2015), who examined the influence of emotional conditions on the disclosure of fraud, were not able to prove that emotions in the form of relief, satisfaction, and regret had a significant influence on the intention to carry out whistleblowing. Therefore, it is interesting to re-examine the extent to which emotions can influence actions, especially in the context of reporting fraud. ...
... Therefore, this research designed emotional treatment to touch on two aspects, namely experience and current conditions, so perhaps this is what makes a significant difference for accounting students in making decisions. It is different from the research of Clements & Shawver (2015), which has yet to be able to prove that emotions have a significant influence on the intention to carry out whistleblowing. The treatment provided was different from that provided in this research. ...
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This research aims to test students' understanding of fraud cases using the persuasion elaboration model, namely the influence of argument framing, source credibility, and emotional condition on the decision to reveal fraud. This research method uses a 2x2x2 online laboratory experiment between subjects with 127 accounting students from Universitas Hayam Wuruk Perbanas. The results showed that the argument framing (positive vs. negative) did not make a significant difference. In contrast, source credibility (high vs. low) and emotional condition (good vs. bad) made a significant difference in accounting students' decisions to reveal fraud. This research contributes to behavioral accounting theory developed with communication science in predicting the behavior of prospective accountants. ABSTRAKPenelitian ini bertujuan untuk menguji pemahaman mahasiswa atas kasus kecurangan menggunakan model elaborasi persuasi, yaitu pengaruh pembingkaian argumen, kredibilitas sumber, dan kondisi emosi terhadap keputusan mengungkapkan kecurangan. Metode penelitian ini menggunakan eksperimen laboratorium online antar subjek 2x2x2 dengan partisipan sebanyak 127 mahasiswa akuntansi Universitas Hayam Wuruk Perbanas. Hasil penelitian menunjukkan bahwa pembingkaian argumen (positif vs negatif) tidak memberikan perbedaan yang signifikan, sedangkan kredibilitas sumber (tinggi vs. rendah), dan kondisi emosi (baik vs. buruk) memberikan perbedaan yang signifikan dalam keputusan mahasiswa akuntansi mengungkapkan kecurangan. Penelitian ini berkontribusi pada teori akuntansi keperilakuan yang dikembangkan dengan ilmu komunikasi dalam memprediksi perilaku calon akuntan.
... They found that when public accountants are aware of problematic earnings manipulations, they tend to feel regret. Clements and Shawver (2015) presented multiple vignettes to reveal the emotional responses of professional accountants towards earnings management. They found that accountants regret reporting earnings management actions based on aggressive and deceptive accounting, but do not regret reporting earnings management actions based on fraudulent accounting. ...
... Similarly, we see how corporate disclosures can evoke stakeholders' appreciation and empathy when expectations of transparent, complete, and in this sense, 'fair' assessments of organizations' financial states are confirmed (Costa et al., 2019;She & Michelon, 2019). At the same time, our synthesis points to intensive affective reactions when accounting breaks its promise to provide an objective truth with regard to financial information, as misreporting, excessive earnings management, and fraud often induce fear-based and anger-based emotions in individuals (e.g., Clements & Shawver, 2015;Johnson et al., 2019;Mayhew & Murphy, 2014). ...
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This review analyzes the role of emotions in accounting research. Drawing on an analytical framework that differentiates between joy-, fear-, anger- and sadness-based emotions, we disentangle the bidirectional dynamics between emotions and accounting, and show how accounting both conditions and is conditioned by emotions. In this way, we demonstrate how an emotional turn in accounting scholarship challenges and expands our understanding of financial accounting, management accounting, and auditing. In addition, we raise awareness about the performative role of ontological and epistemological positions in accounting research on emotions. We find that scholars from different paradigmatic traditions mostly acknowledge each other's work, but often miss the opportunity to fully embrace it. By illustrating the productive insights that emerge from a stronger inter-paradigmatic engagement, we draw attention to the necessity (and excitement) of crossing the great divide. We conclude by outlining avenues of future research on emotions in accounting.
... The survey includes five scenarios assessing attitudes toward whistleblowing. The scenarios were created by Clements and Shawver (2015). Each scenario is based on the Stice and Stice (2006) earnings management continuum. ...
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