An Examination of How Entry-Level Staff Auditors Respond to Tone at the Top vis-à-vis Tone at the Bottom

Abstract

Prior academic and practitioner literature argues that the ethical tone at the top of an organization is a key factor in establishing an effective internal control environment. Drawing on self-concept maintenance theory and in-group bias theory, this study predicts that entry-level staff auditors will disregard a company's ethical standards unless they observe a strong ethical tone from both their partner (tone at the top) and their supervising senior (tone at the bottom). Also, this study predicts that staff auditors will be more influenced by the tone of their supervising senior than the partner when these two individuals provide conflicting tones. In a 2 × 2 experiment that manipulates the tone set by a staff auditor's supervising senior and engagement partner, this study provides evidence consistent with predictions. Further analyses suggest that participants make less ethical decisions because they are less likely to view the situation as an ethical dilemma when either the senior or partner exhibits low tone. The results of this study emphasize that tone at the top is not, by itself, sufficient to produce ethical decision making; organizations must strive to foster a strong ethical tone throughout the entire organization, especially at lower levels of the organization.

The Effects of Auditor Experience and Professional Commitment on Acceptance of Underreporting Time: A Moderated Mediation Analysis

“…Auditors' truthfully reporting the actual hours they work on an engagement is critical to public accounting firms (Rhode 1978;Lightner, Leisenring, and Winters 1983;Akers et al 1998;Pickerd et al 2015), as underreporting time can threaten audit quality (Donnelly, Quirin, and O' Bryan 2003;Stefaniak and Robertson 2010). Akers et al (1998) contend that underreporting time can be harmful to firms and auditors for the following reasons: (1) firms use reported time in preparing the time budget for next year's audit thereby forcing future auditors to have their performance measured against an unrealistic budget or to underreport themselves, (2) firms use reported time to negotiate audit fees with clients, (3) firms use reported time to assess the effectiveness of their audit approach on current engagements, (4) firms use reported hours to make resource allocation decisions, and (5) firms use reported hours to bill clients extra in certain situations.…”

“…Indeed, underreporting time is ubiquitous in public accounting firms (Church 2014;Pickerd et al 2015). Given the negative effects of underreporting on audit firms and the profession, it is important to consider factors that may influence auditors' acceptance of underreporting time.…”

“…U nderreporting time is a common ethical dilemma among auditors and has several detrimental consequences for public accounting firms (Pickerd, Summers, and Wood 2015). Underreporting time can impact audit fee negotiations with clients, distort time budgets for subsequent years' audits, and cloud assessments of audit effectiveness (Akers, Horngren, and Eaton 1998).…”

Behavioral Accounting and its Interactions

“…A strong tone at the top that consists of the culture of control consciousness, integrity, and ethical values from upper level management afects ethical decision-making of mid-and lower level employees [40]. In organizations, upper level management is critical to establishing an ethical tone, but it is seen that ethical decision-making of the staf is also equally impacted by the ethical tones set by lower level supervisors.…”

Comments of the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Concept Release on Audit Quality Indicators, No. 2015-005, July 1, 2015

“…Prior research (Schaubroeck et al 2012;Pickerd, Summers, and Wood 2015) provides evidence of the importance of a strong tone at the top in ensuring operational, internal control, and financial reporting effectiveness. The tone at the top should be set by the firm leadership and at the partner level.…”