The impact of codes of ethics and experience on auditor judgments

Abstract

PurposeThe purpose of this study is to investigate the impact of the presence of a code of ethics on the quality of auditors' judgments, within the context of the new International Standard on Quality Controls 1 (ISQC1).Design/methodology/approachA sample of 112 professional accountants and auditing students was employed to investigate the effect of the presence of a code of ethics (operationalised as the presence vs absence of an organisational code of conduct) on the quality of audit judgments, pertaining to an inventory writedown, using a 2 × 2 full factorial “between‐subjects” experimental design.FindingsThe results of this study indicate that the presence of a code of ethics has a positive impact on the quality of the judgments made by professional accountants, but not on students. This suggests that it is the code of ethics, in the context of greater general experience that leads to higher quality of judgments.Practical implicationsThe results suggest that the requirements of ISQC1 are relevant to the quality control of accounting firms and have potential to positively impact the quality of audit performance.Originality/valueThis is the first paper to examine the impact of the presence of a code of ethics within an audit context. It is the first time that the interactive effects of the code of ethics and technical competency, which together form an integral part of standard‐setters' quality control standards, upon the quality of auditor judgments has been investigated.

A study of Australian and Chinese accountants’ attitudes towards independence issues and the impact on ethical judgements

“…And also the question about whether a published code of ethics has any impact on accounting professionals' ethical judgments has produced a mixed response (Pflugrath et al, 2007). For example, Herron and Gilbertson (2004) found that the AICPA principles-based ethical codes do not effectively promote American accounting students' independence judgments especially where they apply lower levels of moral development.…”

“…Only limited research (e.g., Pflugrath et al, 2007;Herron and Gilbertson, 2004) has examined codes of ethics within the accounting profession although Jones et al (2003) suggested the role of codes of ethics in auditors' ethical decision making deserves further attention.…”

“…Results suggest that Chinese auditors hold strong views about audit independence and also maintain they should avoid close audit-client relationships. In Australia, Pflugrath et al (2007) found that Australian accounting professionals pay greater attention to the code of ethics when forming judgments on ethical issues. However, the issue as to whether Chinese public accountants view the above mentioned issues in the same way as their western counterparts has yet to be explored.…”

“…For example, Herron and Gilbertson (2004) found that the AICPA principles-based ethical codes do not effectively promote American accounting students' independence judgments especially where they apply lower levels of moral development. Pflugrath et al (2007) showed that the presence of a code of professional ethics leads to better quality judgments by Australian accounting professionals but not future accountants (students). Modarres and Rafiee (2011) indicated that familiarity with the codes of ethics leads professional accountants to appreciate their intent and encourage higher levels of ethical judgment making.…”

“…The major purpose of codes of conduct is to improve public accountants' performance and audit quality by strengthening their understanding the moral elements of the environments with which they interface (Pflugrath et al, 2007) because they regularly confront ethical dilemmas while carrying out their professional responsibilities (Herron and Gilbertson, 2004).…”