Ethical perception of accounting program graduates, an investigation into the mandated AICPA curriculum change

... compare ethical perceptions of newly graduated accounting students in both programs after the AICPA s mandated curriculum change to accounting education in the state of New York; and (b) to bridge the. .. fulfilled the goals of the AICPA s mandated curriculum change (Read, Raghunandan, & Brown, 2003, p 31) The AICPA s goal in expanding the educational requirements by 30 credits was to improve the quality... be found on the ethical perceptions of accounting graduates concerning the new changes in the accounting curriculum mandated from the AICPA (Taylor & Rudnick, 2005; Ritter, 2006) The literature

ETHICAL PERCEPTION OF ACCOUNTING PROGRAM GRADUATES: AN

INVESTIGATION INTO THE MANDATED AICPA CURRICULUM CHANGE

by

Nicholas John Koumbiadis

A Dissertation Presented in Partial Fulfillment

of the Requirements for the Degree DOCTOR OF BUSINESS ADMINISTRATION

UNIVERSITY OF PHOENIX

February 2011

UMI Number: 3467479

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ABSTRACT Corporate scandals in the late 90s and early this century led to a decline in the public’s trust of the accounting profession Since that time, the government, companies, and universities have attempted to rebuild that trust through a number of methods, such

as passing laws requiring better regulation and more disclosure as well as requiring improved ethics education for future accountants It is this latter issue that is the focus of this study The purpose is to examine students who have recently graduated from the standard 120 credit accountancy program and compare and contrast their ethical

perceptions with students who have recently graduated from the AICPA-mandated 150 credit accountancy program which includes 30 extra credits with a focus on ethics

Recently graduated accounting students from selected Association to Advance Collegiate Schools of Business (AACSB) were asked to fill out a cross-sectional survey based on Victor and Cullen’s (1988) Ethical Climate Questionnaire (ECQ) to determine whether a difference exists between the two groups’ ethical perceptions The nine hypotheses

derived from the ECQ were tested using an independent sample t-test and Levene’s test

for the homogeneity of the variances between the two groups Compared with graduates

of the 120 credit program, 150 credit program graduates scored significantly higher in ethical perceptions on five domains: Company Profit, Friendship, Team Interest,

Personal Morality, and Rules, when testing at a confidence level of 95% The two groups were not significantly different in the domains of Self-Interest, Efficiency, Social

Responsibility, or Laws This study is part of a growing body of research on ethics in accounting and this project will contribute to future research on similar topics

DEDICATION This work is first dedicated to my Lord and Savior Jesus Christ For in Him I live and move, and have my being Secondly, this work is dedicated to my beautiful wife Janice, and my three lovely children John, Julia, and Gabrielle for their patience, love, and continued support throughout my journey in completing my doctoral dissertation My wife made many sacrifices and is the main reason why I have gone so far I will never cease to appreciate my wife and children daily

Also, I dedicate this work to my parents John and Irene and my sister Popi who have showed me unconditional love and support through the most difficult times in my life I will always remember my family how they believed in me

ACKNOWLEDGMENTS

I have been on this long journey for quite some time and I am beholden to many First, I am indebted to my mentor of my committee, Dr John Parham, for his continued patience, advice, encouragement, and his attention to detail throughout the whole process

of writing a doctoral dissertation I also want to thank the other committee members, Dr John Okpara and Dr Brian Sloboda for their knowledge and recommendations

It would be an unfair if I did not take this moment to acknowledge my colleague and my friend, Dr John Okpara Dr Okpara, I really appreciate your friendship and your commitment to seeing me develop as a doctoral student Your wisdom and support is greatly appreciated and I want you to know that you will always remain dear to my heart

I also want to acknowledge two administrative individuals, Misa Alexander and David Grigorieff for their patience and continuous support and encouragement from the beginning to the end of my studies You both have communicated timely information and kept me well informed of the policies and procedures of the University Above all, you treated me with professional care, courtesy, and understanding throughout the entire process

Finally, I am so grateful to my wife Janice for her support, patience, and sacrifice during the writing for my doctoral dissertation I will always love and cherish my

commitment to her and my family all the days of my life

TABLE OF CONTENTS

LIST OF TABLES xi

LIST OF FIGURES xii

CHAPTER 1: INTRODUCTION 1

Background 3

Problem Statement 6

Purpose Statement 7

Significance of the Study 10

Methods 11

Research Questions 13

Theoretical Framework 15

Ethical Theory 15

Kohlberg’s Theory 16

Views of Ethical Behavior 17

Ethics in Post-Secondary Education 18

Scope 20

Limitations 20

Chapter Summary 21

CHAPTER 2: REVIEW OF THE LITERATURE 24

Historical Perspectives 25

Cognitive Moral Reasoning 27

Opposing Views 28

Contributions to Kohlberg’s Theory 29

Defining Issues Test 29

Victor and Cullen’s Ethical Climate 30

Egoism 33

Benevolence 35

Principle 37

Locus of Analysis 38

Morality 40

Self Values 42

Efficiency Teaching Ethics 42

Social Responsibility 44

Friendship and Team Interest 45

Business Ethics and Legislation and Rules 46

Company Rules and Procedures 48

Ethics and Accounting Curriculum 50

CHAPTER 3: METHODS 54

Research Design 54

Research Methods and Design Appropriateness 55

Sample and Procedures 56

Consent, Confidentiality, and Geographic Location 59

Consent 59

Confidentiality 60

Geographical Location 60

Data Collection Procedures and Rationale 61

Instrumentation 62

Measure of Variables 63

Reliability and Validity 64

Data Analysis 65

Chapter Summary 66

CHAPTER 4: RESULTS AND DISCUSSION 67

Descriptive Characteristics 67

Sample Distribution 67

Findings 70

Factor Analysis 70

Hypotheses Testing 72

Summary of Findings 83

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 85

Discussion of the Statistical Results, their Significance, and Limitations 85

How the Results Fit with the Existing Literature 88

Implications for Accounting Education Policy 93

Recommendations for Future Research 94

REFERENCES 98

APPENDIX A: KOHLBERG’S LEVELS AND STAGES OF COGNITIVE MORAL DEVELOPMENT 116

APPENDIX B: OFFICE OF THE PROFESSIONS NEW YORK EDUCATION DEPARTMENT: LICENSE REQUIREMENT 117

APPENDIX C: ETHICAL CLIMATE QUESTIONNAIRE 118

APPENDIX D: SIGNED PERMISSION TO USE AN EXISTING SURVEY-ECQ 121

APPENDIX E: INFORMED CONSENT FOR PARTICIPANTS 18 YEARS OF AGE AND OLDER 122

APPENDIX F: FACTOR ANALYSIS 123

APPENDIX G: DEMOGRAPHIC QUESTIONS 124

LIST OF TABLES

Table 1: Theoretical Ethical Climate Types 32

Table 2: Ethical Climate Types of the Locus of Analysis 39

Table 3: Sample Size Determination 57

Table 4: Questionnaire Response Summary 68

Table 5: Demographic Characteristics of Respondents (N=286) 70

Table 6: Variable Means and Standard Deviations of both accounting programs 73

Table 7: Independent Sample Test-Self-Interest, Company Profit, and Efficiency 74

Table 8: Independent Sample Test-Friendship, Team Interest, and Social Responsibility 77

Table 9: Independent Sample Test-Personal Morality, Rules, and Laws 80

LIST OF FIGURES Figure 1 STUDY VARIABLES FROM THE ITEMS FOUND IN THE DQ AND ECQ 55

Figure 2 THE SUM OF THE CONFIRMED HYPOTHESES USING THE ETHICAL CLIMATE TYPES PRECURSOR ON PROGRAM 84

CHAPTER 1: INTRODUCTION

In the early 2000s, negative publicity caused by the Enron scandal, which led to the bankruptcy of Enron and the demise of accounting firm Arthur Andersen, may have affected the public perception of the accounting profession (Zabihollah, 2004) In a 2002 Gallup poll, positive ratings of accounting professions fell 47% to 31% and negative ratings increased from 8% to 31% after the Enron scandal (AICPA, 2005) In the

aftermath of Enron/Arthur Anderson and other accounting scandals (Adelphia

Communications, Dynegy, WorldCom, Tyco), several measures including the Oxley (SOX) Act of 2002 were put in place to prevent misdeeds by public accountants

Sarbanes-These events have also increased interest in the moral reasoning of public

accountants A study by Rau and Weber (2004) examined whether the Enron event had heightened auditors’ moral reasoning, measured by the perceived moral intensity

embedded in ethical dilemmas they faced Results showed that auditors’ awareness of moral reasoning increased significantly after the scandal (Koumbiadis, Okpara, 2008; Dellaportas, 2006; Titard, 2004; Esmond-Kiger, 2004) The commitment and subsequent discovery of some accountants’ unethical behaviors also resulted in the modification of the number of requirements in the accounting curriculum in post-secondary institutions

by the American Institute of Certified Public Accountants (AICPA) To improve the level of professional responsibility and ethics, changes in post-secondary instruction were imminent (Desplaces, Melchar, Beauvais, & Bosco, 2007; Mantzke, Carnes, & Tolhurst, 2005) However, a review of relevant literature revealed that little research had been conducted on the effectiveness of the AICPA-mandated curriculum change in bettering

students’—and thereby future accountants’—views of ethics and professional

responsibility (Ritter, 2006; Taylor & Rudnick, 2005)

Accounting curriculum revisions by the AICPA included the addition of the 150 credit rule, which has been adopted by 40 states (Allen & Woodland, 2006; De Barry, 2003; Taylor & Rudnick, 2005) According to the New York State Education

Department (NYSED), the 150 credit rule required accounting students to complete courses in ethics and professional responsibility in order to qualify to take the Certified Public Accountant (CPA) exam (see Appendix A) Accounting students could still enroll

in a 120 credit accounting program; however, upon finishing this, they would not be qualified to sit for the CPA exam

Some experts have raised concerns regarding the effectiveness of this curriculum change and whether it is needed (Bierstaker, Howe, & Seol, 2005) The AICPA’s

ultimate goal with the 150 credit rule was to increase the quality of work produced by accountants given that the business world environment is often changing (AICPA, 2010) The quality of public accountants’ work is dependent upon the demand for ethical

accounting, auditing, and assurance services evidenced by financial reporting (Allen & Woodland, 2006; Carpenter & Stephenson, 2006)

The changes elicited by the AICPA reflected a growing interest in the ethical perceptions of newly graduated accounting students (Reckers, 2006) However, it was unclear as to whether perceptions of ethical reasoning differed between accounting

graduates in the 150 credit program compared to those in the 120 credit program The purpose of this study, therefore, was to determine the efficacy of the new 150 credit program and if it achieved the desired results The study used Kohlberg’s (1968) theory

on moral development and cognitive moral reasoning as a theoretical framework Newly

graduated accounting students from selected colleges in New York State were surveyed using a questionnaire developed by Victor and Cullen (1988), which was based on

Kohlberg’s (1968) theory on moral development and cognitive moral reasoning Newly graduated accounting students were defined in this study as those who graduated from either of the two accounting programs in the last two years Chapter 1 provides

background of the problem and the purpose of this study

Background Unethical behaviors among public accountants prompted a revision in post-

secondary education for accounting majors (Earley & Kelly, 2004) The downfall of some large companies also led to more demands on ethical conduct in the accounting profession (Puxty, Sikka, & Willmott, 1994) Ethical decision making, the new 150 credit requirement, compliance with the Sarbanes-Oxley (SOX) Act of 2002, and an increase in professional responsibility within the field of professional accountancy were among the demands encountered by graduating accounting students as well as the

business schools they attended (Malone, 2006) Koestenbaum, Keys, and Weirich (2005) suggested that a reason why today’s accountants may have succumbed to unethical

practices was that the business schools “often teach that money always comes before ethics” (p.13)

Research conducted by several business schools revealed that the labor market for newly graduated accounting studentswho sought to become CPAs put more demands on the profession due to the unethical acts performed by some public corporations (Allen & Woodland, 2006; Harrington & Moussalli, 2005) Koestenbaum et al (2005, p 13)

reported that lack of confidence in financial reporting by accountants had been a

contributing factor in slowing U.S capital markets As a result of the unethical acts performed by some public corporations, the latest government involvement for the

economy included new rulings that led to the passing of the Sarbanes-Oxley Act of 2002, which addressed the current unethical behaviors by some corporate leaders and

independent accountants One of the goals of SOX was to restore public confidence in CPAs (Cunningham, 2006; Koestenbaum, et al., 2005) The Act allowed the Securities and Exchange Commission (SEC) to require that publicly traded corporations comply with stringent rules on financial reporting, including the issuing of financial statements

It also enhanced white collar crime penalties and included several other provisions that placed stringent conditions on publicly traded corporations The first title of the SOX Act established the Public Company Accounting Oversight Board (PCAOB)

The PCAOB’s task was to guard the public against unethical behavior of any public accountants that may result in misrepresentation of financial information of

publicly traded companies (Coates, 2007; Whitley, 2006) The falsification of financial statements from several accounting firms such as Enron created a lack of public, investor, and economic confidence in CPAs (Rau & Weber, 2004) Consequently, the main

purpose of SOX in establishing the PCAOB was to restore public confidence in and improve the ethical perceptions of CPAs (Carmichael, 2004)

Although a great deal of research on the study of ethical and moral development among individuals was performed in earlier periods (Kohlberg, 1968; Rest, 1973; Victor

& Cullen, 1988), little research has been carried out regarding ethical perceptions of newly graduated accounting students who satisfied the 150 credit rule (Molyneaux,

2004) Supporters of the 150 credit rule agreed that the additional credits in the 150 credit accounting curriculum generated a higher quality of students who were better prepared ethically to enter the public sector compared with accounting students of the past who took only 120 credits (Allen & Woodland, 2006) Moreover, Rezaee (1994) suggested that the 150 credit rule improved students’ ethical perceptions and accounting knowledge, allowing accounting majors to exercise due professional care as future CPAs Accountants have always played an essential role in ensuring that reported financial information remains free from any material misstatements that may change a

stakeholder’s decision If an individual has misled the public by falsifying financial records, thereby departing from generally accepted accounting principles (GAAP) and making an unethical decision, the results can be devastating, potentially causing the fall

of companies, the employees, and the economy (Guynn, 2005) Unethical behaviors of some corporate officers and accountants have created situations in which financial

statements needed for important decisions lacked objective reporting Because initially the individual unethical employees did not bear the brunt of the blame for the

misperceptions, but rather the companies themselves were held ethically and legally responsible, the ultimate effect of the unethical behavior greatly impacted both the

companies and in turn the economy (Guynn, 2005)

Referring to how easily the economy and players within it can be affected by unethical behaviors, Guynn (2005, p 387) provided details that shareholders lost

approximately $66 billion in market capitalization in the case of Enron and $177 billion

in the case of WorldCom Throughout 2000, the International Accounting Standard Board (IASB) revisited the global accounting standards as a result of the demise of some

publicly traded companies in the United States The crumpling of some U.S

corporations cost billions in losses and increased risk in the market for many stakeholders (Kaplan, 2007; Tweedie & Seidenstein, 2005)

Stakeholders are interested in the views of accounting graduates because they will

be future leaders in accounting firms An inquiry into the ethical perceptions of

accounting graduates supported the notion that more education could increase ethical awareness and thereby avert future scandals (Myers, 2003)

Problem Statement Publicly traded companies regularly release financial statements, which the public depend upon to be both reliable and relevant To ensure the reliability and relevance of the statements, companies frequently employ CPAs to validate the companies’ financial information (McFarland, 2005) Without reliable financial information, or even

perceived reliable information, users cannot rely on financial statements for making good economic decisions, potentially resulting in widespread economic ramifications

(Molyneaux, 2004) During the late 1990s, some corporate executives and their

accountants, from companies such as Enron and Andersen, published some misleading financial accounts (Titard, 2004; Esmond-Kiger, 2004)

The discovery of Enron's accounting fraud affected not only the company itself, which declared bankruptcy soon after, but also, called into question the trustworthiness of other companies That led to the dissolution of companies such as Arthur Andersen, which “forever altered the public’s view of the CPA” (Lindberg & Beck, 2004, p 36), and the public lost faith in the field of accounting as a whole (Rauterkus & Song, 2005) The U.S government responded to these events by creating the SOX Act, which set new,

stricter standards for all U.S public companies and accounting firms (Brown, Stocks, & Wilder, 2007; Earley & Kelley, 2004; Gene, 2005; McCuaig, 2006; Zabihollah, 2004)

To improve the ethical perceptions of new accounting students and prevent such ethical violations, a new curriculum was created to increase the emphasis on ethics in the classroom (Gaa & Thorne, 2004) However, the question was whether the addition of 30 credits mandated by the AICPA actually makes a difference in the ethical practices of newly graduating accountants Presently, no research is available related to the effect of the 30 additional credits on the ethical perceptions of newly graduated accounting

students

To explore this question, a quantitative research method was used, consisting of a cross-sectional survey of newly graduated accounting students and statistical analysis of the results This population comprised two groups of accounting graduates: (a) those who completed 120 credits, and (b) those who completed the newly mandated 150

credits

Purpose Statement The purpose of this study was to examine if a difference existed between the ethical perceptions of newly graduated accounting students in the 120 credit program and those in the AICPA-mandated 150 credit program in selected Association to Advance Collegiate Schools of Business (AACSB) accredited colleges in New York The

students’ ethical perceptions were measured via a cross-sectional survey using Victor and Cullen’s (1988) Ethical Climate Questionnaire (ECQ), which was based on Kohlberg’s (1969) theory of Cognitive Moral Development

The ECQ has been used for ethical perception studies in the past in developed and developing countries and was found to be a valid and reliable method of determining people’s perceptions on ethics (Cullen, Parboteeah, &Victor, 2003; Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008) It was therefore selected for this study to determine the graduate students’ ethical perceptions

The key independent variable for this study was program type, with two levels: the 120 credit program and the 150 credit program The dependent variable was the ethical perceptions of the accounting graduates from each of the programs, as measured

by the ECQ The ECQ variables were: self-interest, friendship, personal morality,

company profit, team interest, company rules and procedures, efficiency, social

responsibility, and laws and professionalism Information on these dependent variables was derived from the Demographic Questionnaire (DQ), and the ECQ which measures ethical perceptions The demographic variables were: gender, GPA, knowledge of an ethics course, knowledge of SOX and passing the CPA exam (While not all demographic variables were used in this particular study—which focused primarily on ethics courses taken, and the passing of the CPA exam—the current knowledge would be

complemented by additional studies that look more closely at the other variables.) The ECQ variables were: self-interest, friendship, personal morality, company profit, team interest, company rules and procedures, efficiency, social responsibility, and laws and professionalism These variables were identified in the literature and had been used by previous researchers in the study of ethics (Cullen, Parboteeah, &Victor, 2003;

Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008) Descriptive information about the sample (not used in the analysis) was derived from the

Demographic Questionnaire (DQ), including gender, GPA, knowledge of an ethics

course, knowledge of the SOX Act, and passing the CPA exam

Using Kohlberg’s (1968) CMD as a foundation, this study explored the present accounting program in post-secondary institutions and its affect on ethical reasoning Modifications to the educational requirements required that accounting graduates wishing

to take the CPA exam have 150 credits, up from the previous requirement of 120 credits (Read, Raghunandan, & Brown, 2003) Incorporated in the 150 credit program was a set

of classes that combined financial statement analysis, professional ethics, and

professional responsibility (see Appendix B) Jones (2005, p 48) defined “professional ethics” as “the moral values that a group of people use to control the way they perform a task or use resources.” The AICPA created a “set code of professional conduct for public accountants,” which should be followed by each practicing accountant who has fulfilled the goals of the AICPA’s mandated curriculum change (Read, Raghunandan, & Brown,

2003, p 31)

The AICPA’s goal in expanding the educational requirements by 30 credits was to improve the quality of graduating accounting students, in turn hoping to advance the quality of work carried out by public accountants As the business environment made adjustments as a result of the unethical decision making of a few accountants, so may the consequences of the demand for ethical accountants restore the public’s opinion in

accounting firms and auditing services This study examined whether a difference

existed between the perceptions of ethics among students in the 150 credit accounting program and those in the previous 120 credit program

Significance of the Study Public confidence in the CPA profession diminished following the aftermath of several large corporate scandals (Esmond-Kiger, 2004; Koumbiadis & Okpara, 2008; Lindberg & Beck, 2004; Mason, 1994) As a result, students at several universities took the issues of ethics into their own hands by developing academic honor pledges and codes of conduct (Smith, 2004) Additionally, Congress attempted to restore public confidence in CPAs by enacting the Sarbanes-Oxley Act of 2002, and the AICPA

endorsed the 150 credit rule which it hoped would create higher quality students who would later become accounting professionals The AICPA believed that increasing the number of credit hours from 120 to 150 would help future leaders in accounting be better prepared An understanding of how the changes by students themselves, by Congress, and by the AICPA impacted the ethical perceptions of accounting graduates could be of significant interest to decision makers in the area of financial information (Orin, 2008)

An investigation into the 150 credit rule revealed that little research had been conducted on whether it has had any effect on the ethical perceptions of accounting graduates (Ritter, 2006; Taylor & Rudnick, 2005) Therefore, the contribution of this research could assist in bridging the gap between accounting theory and ethical

accounting practice (e.g., preparation of financial statement, tax returns, and other

financial reporting), educators, and training and development, and advance knowledge in this area of inquiry in the field of ethics (Krebs, 2006; Jennings, 2004)

Significance of the Study on Leadership This study was significant to leadership because it reported on the ethical values

of future accountants who will be in positions to lead the way in the area of financial

information Leadership within the accounting profession may be influenced by the changes to the profession instated by Congress and the AICPA to avert future scandals like those that proved detrimental to both the economy and society (Chang & Yen, 2007) Additionally, an inquiry into the ethical perceptions of accounting graduates may be able

to show that ethical awareness can be increased with education, and more importantly, it may avert future scandals (Myers, 2003) As accounting graduates become future leaders

in the preparation and presentation of financial information, examining the graduates’ perceptions of ethics in light of the recent changes to the accounting curriculum and the profession will inform efforts to improve tomorrow’s ethical leadership

Methods Data for this research were collected from two groups of accounting graduates: (a) those who graduated from the 120 credit program during 2008 and 2009, and (b) those who completed the AICPA 150 credit program during the same years This program included 30 additional credits that focused on ethics and professional responsibility (See Appendix B) A questionnaire adapted from Kohlberg’s Theory of Moral Development was used to determine the ethical perceptions of accounting graduates Results will help determine whether the new 150 credit rule provided a significant improvement in

students’ perceptions of ethics Data collected from both groups of accounting graduates were compared to determine whether significant differences existed between the two groups

A quantitative questionnaire was used in this study to explore whether measures

of ethical perceptions (dependent variables) of accounting graduates differed by program

type, 120 credits versus 150 credits (independent variable) This approach allowed for the assessment or measurement of individual abilities (Creswell, 2005)

The questionnaire included Victor and Cullen’s Ethical Climate Questionnaire (ECQ), which was based on Lawrence Kohlberg’s theory of cognitive development The purpose of the ECQ questionnaire was to find out if there was a difference between the ethical perceptions of the 120 credit program graduates verses the 150 credit program graduates A cross-sectional analysis was used to “examine current attitudes, beliefs, opinions, or practices” (Creswell, 2005, p 356) According to Bush and Burns (2005), cross-sectional studies are common in quantitative research and “are one-time

measurements, they are often described as snap-shots of the population” (p 125) In addition, a cross-sectional survey design is often used to “compare two or more

educational groups in terms of attitudes, beliefs, opinions, or practices” (Creswell, 2005,

p 356) With this cross-sectional survey design, the study compared the newly graduated accounting students who only completed 120 credits with accounting graduates who completed 150 credits in order to determine whether a significant difference existed in the level of ethics and public responsibility between these two groups of graduates

Questionnaire respondents answered questions based on a Likert scale ranging from 0 to 5, where 0 was completely false and 5 was completely true (See Appendix C) Because the data were based on a numerical scale, a quantitative approach was used to analyze results Study participants included the two groups of accounting graduates, those from the 120 credit program and those students who completed the newly mandated AICPA 150 credit program at both public universities and private colleges in New York State (NYS)

Samples of the two groups of graduates were randomly selected from alumni directories of private and public universities located in NYS

Research Questions Each research question was based on the literature review and was found to be an important contribution to the field of ethics (Cullen, Parboteeah, &Victor, 2003;

Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008) The research questions (RQs) provided a basis for establishing the hypotheses (Hs) for this research:

Main RQ: Do accounting graduates in the 150 credit program exhibit significantly

different perceptions on ethics than accounting graduates in the 120 credit

RQ2: To what extent was ethical perception (Company Profit) important to the

two groups of accounting graduates?

H2: Ethical perceptions (Company Profit) will not be significantly different

between the two groups of accounting graduates

RQ3: To what extent was ethical perception (Efficiency) important to the two

groups of accounting graduates?

H3: Ethical perceptions (Efficiency) will not be significantly different between the two groups of accounting graduates

RQ4: To what extent was ethical perception (Friendship) important to the two

groups of accounting graduates?

H4: Ethical perceptions (Friendship) will not be significantly different between

the two groups of accounting graduates

RQ5: To what extent was ethical perception (Team Interest) important to the two

groups of accounting graduates?

H5: Ethical perceptions (Team Interest) will not be significantly different between

the two the groups of accounting graduates

RQ6: To what extent was ethical perception (Social Responsibility) important to

the two groups of accounting graduates?

H6: Ethical perceptions (Social Responsibility) will not be significantly different

between the two groups of accounting graduates

RQ7: To what extent was ethical perception (Personal Morality) important to the

two groups of accounting graduates?

H7: Ethical perceptions (Personal Morality) will not be significantly different

between the two groups of accounting graduates

RQ8: To what extent was ethical perception (Company Rules) important to the

two groups of accounting graduates?

H8: Ethical perceptions (Company Rules) will not be significantly different

between the groups of accounting graduates

RQ9: To what extent was ethical perception (Laws) important to the two groups

of accounting graduates?

H9: Ethical perceptions (Laws) will not be significantly different between the two

groups of accounting graduates

Theoretical Framework The theoretical framework for this research was a number of germinal studies on ethics and the ethical behavior of accounting graduates This research made use of

ethical models, viewpoints, subjects of significance, and disagreements related to the study of ethical and unethical behaviors According to Alan and Jack (2008), pressure from clients to trim down accounting firms’ prices yielded a lower quality of work

performed by accountants Moreover, accounting firms’ expenditures were on the rise since the passing of the Sarbanes-Oxley Act of 2002 because the Act’s strict regulations meant companies had to hire more people and spend a larger amount of time than they previously had in order to meet those stringent requirements Other challenges faced by today’s CPA’s include “an increase in liability risk, standards overload, a lack of growth

in the demand for services, and keeping pace with the explosion in technological

advances” (Jenkins and Wolf, 2008, p 46)

Ethical Theory

Aristotle’s (384-322 BEC) view was that a virtuous life was the most flourishing

In effect, the best human life was one of excellent human activity (Minnameier, 2005) Virtue has always referred to that human excellence which can be realized in distinctively human activity Virtues were something acquired mainly by habituation Thus, one

became virtuous by doing virtuous acts Thomas (2008) felt that virtue was a matter of choice, that it was concerned with passion and action

Deontological theorists considered the actions of an individual either good or bad based on universal rules and principles (Leenders & Brugman, 2005) An expression of

the theory of deontology originated from the belief: Do unto to others as you would have them do unto you Deontologists judged the appropriateness of actions of human beings

as well as their moral reasoning apart from the consequence of their actions (Kubasek, Brennan, & Browne, 2003) “Deontological ethics systems held that moral right takes precedence over the good and can be evaluated by considerations independent of or in addition to consequences” (Kubasek et al., 2003, p 209)

Kohlberg’s Theory

Kohlberg’s (1969) theory on cognitive moral development (CMD) has provided a theoretical foundation for the study of ethics in most modern research The theory

proposed that an individual goes through three hierarchical stages of moral development

to resolve an ethical predicament These were organized into a range of levels—

preconventional, conventional, and postconventional or principled—which were then expanded into six stages The six stages were subsets of the preconventional through postconventional rankings that contained problem-solving strategies and a developmental sequence of moral reasoning (See Appendix A)

The CMD theory’s fundamental principle was that people progressed through a series of stages in their moral reasoning (Kohlberg, 1976; Rest, 1973, 1979) The theory helped explain how individuals were able to make basic ethical choices in the world depending on their environment, which was made up of a person’s culture, faith, and

schooling Kohlberg established that ethical reasoning developed near the beginning of people’s lives and expanded progressively as they matured into adulthood based on their ability to reason Teaching constituted intervention and aroused ethical reasoning as one progressed through a sequence of stages, depicted by Kohlberg’s theory (1969)

Views of Ethical Behavior

As a result of some corporate debacles, the public has cried out for holding

business leaders accountable to a high ethical and moral standard Coursework on ethics has developed into a requirement in many post-secondary institutions for all accounting majors (Earley & Kelly, 2004) As a consequence of this requirement, one study found that accounting students who were enrolled in an ethics course showed a greater

understanding of the repercussions of making unethical decisions, and they demonstrated better moral reasoning and an increase in ethical behavior (Dellaportas, 2006; Malone, 2006; Marnburg, 2003) Schermerhorn, Hunt, and Osborn (2003) argued that ethical behavior and training play an integral part in a thriving society The study of moral reasoning has several perspectives:

1) The utilitarian view delivered the greatest good to the greatest number of

people, implying that the needs of many outweigh the needs of the few

2) The individualism view considered ethical behavior to be best for an

individual’s long-term self-interests

3) The moral-rights view respected the fundamental rights of all cultures 4) The justice view suggested that all people should be treated fairly and

impartially (p13)

Ethics in Post-Secondary Education

Accounting graduates entering into the workplace should be cognizant of ethical dilemmas they may encounter with customers, assistants, opponents, and vendors

Examples include illegal kickbacks, falsifying documents, gifts, price fixing, and

embezzlement Due to the debacles of some top corporations involvement in items above, Congress passed the Sarbanes Oxley Act of 2002, which requires adding extra time for the teaching of ethics to accounting students (Dellaportas, 2006; Malone, 2006; Marnburg, 2003)

The teaching of ethics to accounting students is still open to debate Bampton and Maclagan (2005) were pessimistic, stating that “ethics is not a credible academic subject

in a business school context; teaching ethics cannot change the values which people have acquired earlier in life, because learning about ethical theory will not ensure moral

conduct” (p 290) According to Bampton and Maclagan, ethics were learned in

childhood long before one enters into the classroom Nevertheless, the authors proposed that “the inclusion of ethics in the accounting curriculum will help practitioners cope with actual ethical dilemmas they may face” (p 291)

Kunsch, Theys, and Brans (2007), however, argued that the goal of incorporating ethical training in classrooms was to enhance one’s awareness of ethical reasoning in general, which may correct students’ future decision making Clikeman (2003) argued on the importance of educators adding class discussions on ethics to stimulate accounting students’ ethical reasoning abilities Clikeman’s (2003) research found that accounting education does influence students’ professional attitudes, suggesting that corporate

financial scandals may be curtailed in the future by teaching ethical dilemmas to

graduating accounting students Additional findings were that “undergraduate accounting education is successful at instilling in students a sense of responsibility for truthful

financial reporting” (p 80) Clikeman supported the initiative of students enrolling in the150 credit program only if the additional 30 credits included an ethics course (2003)

Definitions of Terms Key terms are defined below to articulate the meaning used in this study

Business Ethics: The written or unwritten codes of principles and values that govern

one’s decisions and actions within a company The value-oriented assessment of the moral significance of personal and organizational actions and their

consequences on society (Barlas et al., 2003; Dobel, 2005)

Deontological: Based on the universal rules and principles, action can be either good or

bad (Leenders & Brugman, 2005)

Ethics: The “field of inquiry that concerns the actions of people in situations where one’s

actions have an effect on the welfare of both others and oneself” (Gaa & Thorne,

2004, p 4)

Ethical Behavior: Morally accepted as doing “good” and what is “right” as opposed to

doing something that may be considered “bad” or morally “wrong” in a particular setting (Schermerhorn, Hunt, & Osborn, 2003, p 13) Ethical behavior is the reflection of both individual and situational influences that individuals encounter

in life (Dellaportas, Leung, Cooper, & Jackling, 2006)

Ethical Dilemmas: Any situation arising where an individual is at a crossroads and needs

to make an individual decision or an organizational one, or possibly both, which

is considered unethical (Schermerhorn, Hunt, & Osborn, 2003)

Morality: Concern with social practices that define right and wrong These practices,

along with rules and customs, are transmitted within institutions and cultures from one generation to the next (Beauchamp & Bowie, 2004)

Sarbanes-Oxley (SOX) Act: Passed by Congress to protect the public from fraudulent

accounting practices by corporations The Act instituted extensive auditing procedures and stricter federal regulation of accountants and corporate

governance Corporate scandals which caused public outrage and a need for reform led to President George W Bush signing the Act into law on July 30, 2002 (Wegman, 2007)

Scope Study participants consisted of 350 accounting graduates listed in the alumni directories of four universities and colleges located in New York State These

participants were taken from two groups of accounting graduates The first group

included only those graduates who had completed 120 credit hours The second group consisted of graduates who had taken the AICPA’s newly mandated 150 credit program The study used Victor and Cullen’s Ethical Climate Questionnaire to obtain data from participating graduates Through research and data collection, the collected information provided details that contributed to the importance of teaching ethics and discussing ethical issues in the classroom

Limitations Irrespective of the important findings of this research, their possible limitations should also be mentioned The first limitation lies in the need to use need cross-sectional research design instead of longitudinal design Because the adjustment of ethical

perceptions occurs over time, an optimal design would be longitudinal design However, due to resource limitations, the dimension of time was operationalized as experience and was controlled for statistically

The second limitation was 350 accounting graduates participating in the study were randomly selected from a convenience sample of three nearby institutions While these students may not be a fair representation of all graduates in the state of New York who graduated in the last two years from each program, accounting courses are the same across all colleges and universities in New York

The third limitation was the fact that all data were collected using self-report questionnaires raising the possibility of responses being affected by a common-method The fourth limitation was the fact that the findings of this study cannot be generalized to all universities or accounting graduates that was not part of this study

Based on the limitations of the present study, future research should be replicated

to validate or refute its findings This would help to expand the literature and increase our understanding of this topic This study should also be replicated in other states and at other universities A quantitative survey method for data collection and analysis was used for this study; future research should use qualitative methods focusing on ethical

perceptions to gain a better understanding of how the students' ethical perceptions are developed and Future research could also use in-depth interviews to further refine the scales for measuring these constructs

Chapter Summary The collapses and scandals of several corporations such as Enron, WorldCom, Sunbeam, Xerox and Tyco in the United States prompted public criticism of business and

accounting practices (Dellaportas, Leung, Cooper, & Jackling, 2006) The outcomes of unethical behavior among certified public accountants caused authorities to promote changes to improve the quality of education in the accounting curriculum (Desplaces, Melchar, Beauvais, & Bosco, 2007) Revisions to the accounting curriculum by the AICPA included the addition of the 150 credit rule that required students to complete courses in ethics and professional responsibility This rule was adopted by the

Department of Professional Regulations in 40 U.S states to improve the level of ethics in accounting graduates (Taylor & Rudnick, 2005) Some raised concerns regarding the effectiveness of this rule and whether there was a real need for the curriculum change by the AICPA (Bierstaker, Howe, & Seol, 2005) The AICPA’s overall goal was to increase the quality of work offered by public accountants This research reported on the findings

of any differences in ethical perceptions between both groups of accounting graduates

The objectives for this study were: (a) to compare ethical perceptions of newly graduated accounting students in both programs after the AICPA’s mandated curriculum change to accounting education in the state of New York; and (b) to bridge the gap in literature, because little research had been conducted on the ethical perceptions of

accounting graduates who fulfilled the 120 credit rules versus those who fulfilled the 150 credit rule (Molyneaux, 2004) Raghunandan, William, and Clifford (2003) stated that research findings on the effectiveness of the requirement may impact researchers,

educators, and accountants alike when it comes to the effectiveness of the mandated change within the accounting curriculum

To provide a conceptual foundation for this quantitative study, the literature review in Chapter 2 includes a theoretical framework in the study on ethics, beginning

with a historical perspective on cognitive moral reasoning, ethical theories, ethical

perceptions, business ethics, and ethics in education

CHAPTER 2: REVIEW OF THE LITERATURE This chapter discusses the theoretical foundation for the study and the scholarly research on moral reasoning and the impact on the ethical perceptions of newly graduated accounting students This chapter additionally discusses important factors in the study of moral reasoning, and expounds on the theories of moral reasoning from the previous chapter The introduction to this chapter examines the historical perspective on cognitive moral reasoning and serves as a roadmap of the important components of the research questions This chapter also guides the discussion for the rest of the study, on whether or not 30 extra credit hours in the accounting curriculum benefits accounting graduates’ moral reasoning in making ethical decisions on financial reporting

The review of literature plays a critical role in understanding existing research on the perceptions of ethics and the need for this study on whether a significant difference existed in the ethical perceptions of accounting graduates who were required to

participate in the 150 credit program mandated by the AICPA as opposed to earlier accounting graduates who only completed 120 credits Neuman’s (2003) definition of literature review was “based on the assumption that knowledge accumulates, and that people learn from and build on what others have done” (p 96) Creswell (2005), building

on this definition, viewed the literature review as a written summary of journal articles, books, peer reviews, and other indexed publications on a specific topic that describe the pros and cons of past and current information related to a chosen study An important asset of this proposal was to present both germinal and current research associated with determining whether the mandated AICPA 30-hour increase in training improved ethics

in the field of accounting A review of relevant literature and anecdotal evidence on this

subject has shown that, while a small amount of research has been conducted on this subject, none that can be found on the ethical perceptions of accounting graduates

concerning the new changes in the accounting curriculum mandated from the AICPA (Taylor & Rudnick, 2005; Ritter, 2006) The literature review described the range of the AICPA’s activities using subtopics to discuss ethical perceptions of accounting graduates from post-secondary institutions, which prompted an investigation into the mandated AICPA curriculum change The literature review either supported or repudiated the ethical perceptions of these different groups of graduates

Historical Perspectives Since the discovery of unethical events occurring within companies like Enron and Arthur Andersen, public accountants have been held to higher standards of integrity (Cagle, Glasgo, & Holmes, 2008; Wakefield, 2008) The AICPA requires that

accounting graduates were of a good moral character and adhered to a life of honesty and integrity (Deans& Nicholson, 2008; Mohammad, 2007) To ensure that accounting graduates were prepared for the ethical challenges in the profession, the AICPA

mandated an extra 30 credits including ethics studies to be added to their curriculum Empirical research supports the idea that educational instruction in ethics may increase ethical awareness for accounting students (Chang, 2007; Dellaportas, 2006; Hurtt & Thomas, 2008; Swanson, 2005) In light of the several ethical lapses of some key public figures over the past decade, this issue of ethical awareness is of vast importance Ethical lapses may be averted in the future with the inclusion of educational instruction in ethics, through case studies, moral dilemmas, and practice simulations on issues such as the illegal spying at the Watergate Hotel during the 1970s; insider trading in the 1980s, and

the savings and loans debacle; the impeachment process in the 1990s of President Bill Clinton over the Lewinski affair, and finally the fraud and subsequent failure of Arthur Anderson, Enron, Global Crossing, WorldCom, and HIH (Longenecker, Moore, Petty, Palich, & McKinney, 2006)

Ethics is a difficult to define and much debated subject Can 30 additional credits within the accounting curriculum influence the ethical perceptions of accounting

students? Longenecker et al (2006) argued persuasively that “ethical perceptions and behavior are rooted in differences between individuals, variations in their organizational settings, and the interplay between the two” (p 170) Ruth (2008) felt that research in ethics may be a bit mystifying and does not ensure that people understand ethical

behaviors As suggested by Lewis, “defining ethics is like nailing Jell-O to the wall” (1985, p 337)

Aristotle’s ethical views were not so much on principles but rather on virtue and a good moral character Hartman (2008) noted that Aristotle believed that “correct views about ethics are compatible with common sense and in the end, finding a truly good character is rare because rationality is rare” (p 314) Conversely, Socrates taught his students that traditional morality was derived from one’s own belief system, rather than any one correct way of establishing what is ethically right or wrong Socrates likewise determined that patterns of moral reasoning exist in one’s environment and that these patterns lay the foundation for certain virtues Socrates felt that the improvement of the human soul relied on humans behaving ethically (Hartman, 2008)

Cognitive Moral Reasoning Most scholarly research in ethics has recognized Kohlberg’s (1969) theory on Cognitive Moral Development (CMD) CMD is explained by moral reasoning abilities, which are based on ethical behavior as defined through Kohlberg’s six stages Kohlberg extended Piaget’s (1932) work on children’s moral development Kohlberg was intrigued

as to how individuals morally thought and reasoned, as opposed to the moral implications

of an individual’s actions Kohlberg’s theory of CMD with its stages of moral

progression has been used extensively throughout the years by many ethics researchers to explore and understand how individuals morally reason (Jones, Massey, & Thorne, 2003) Jones, Massey, and Thorne, showed that a “relationship between a variety of individual characteristics and ethical development” was important to understanding moral development (2003, p 92)

Kohlberg’s (1969) theory of CMD was examined in a “series of stages that begin

in adolescence and extend through adulthood, under the headings of preconventional, conventional, and postconventional” (p 39) Each of these was divided into 2 stages (See Appendix A) Kohlberg argued that individuals were able to and capable of making ethical decisions based upon their surroundings Kohlberg’s work presented the case that

an individual’s ethical behavior is brought about through moral reasoning, which may develop as an individual goes through a series of growth stages from adolescence to adulthood

Kohlberg’s CMD model comprised three levels, with two stages for each level Rest (1986) noted that Kohlberg’s six stages were viewed as forming a sequence in which attainment of an advanced stage depended on the attainment of each of the preceding

stages (p 226) Victor and Cullen’s ethical climates suggested “that individuals’ moral reasoning skills (judgment on how moral dilemmas ought to be resolved) evolve over time, reflecting three distinct categories of moral judgment processes, which [Kohlberg] termed preconventional, conventional, and postconventional” (p.185-186) Kohlberg’s six stages of moral maturity are found in Appendix A

Kohlberg (1969) explained that many individuals do not progress past stage four

of the moral development process (See Appendix A), theorizing that many people do not advance through the three levels of cognitive moral development Individuals who

progressed through the third level used their moral reasoning that was based on principles and values, even when it is not popular or compatible with universal law (Trevino, 1986) Kohlberg’s theory was important to this research, because graduating accounting students advanced through the stages in the accounting curriculum from the time they were

freshmen to when they graduated as seniors (Clikeman, 2003; Earley & Kelly, 2004; Jones, Massey, & Thorne, 2003)

Opposing Views

Trevino (1986) suggested that Kohlberg’s research excessively emphasized

cognition and ignored actual behavior (i.e., if the individual acts in an amoral manner), and developed an alternative to Kohlberg’s CMD model Trevino’s (1986) model

proposed that cognition and action are related because people have a drive for

consistency between their thoughts and actions (1986, p 609) This model appeared to

be more practical than Kohlberg’s model, because Trevino’s model concentrated on an individual’s personal dealings and ethical dilemmas, which were affected by moral

reasoning and ethical behavior