Enhancing Public Trust in the Accounting Profession Using Professional Judgment Rather Than Personal Judgment in Resolving Accounting Ethics Dilemmas Submitted to Regent University School of Leadership Studies In partial fulfillment of the requirements for the degree of Doctor of Philosophy in Organizational Leadership Gene R. Sullivan April 2004 ii iii Abstract This dissertation empirically examined the impact of ethics instruction and ability on students’ propensity to use professional judgment in resolving accounting ethics dilemmas. The literature has supported the need for increased ethics instruction in accounting programs as a vehicle to improve ethical decision making in the accounting profession. The significance of the American Institute of Certified Public Accountants (AICPA; 2004) Code of Professional Conduct as the profession’s source of authority relative to ethical decision making was documented. The Code emphasizes three trust characteristics (ability, benevolence, and integrity) identified in the literature that are important relative to enhancing public trust in the accounting profession. Ability is important to ethics instruction as it determines the extent to which students acquire a working knowledge of the AICPA Code of Professional Conduct Provisions. The ethical norms contained in the Code’s provisions are derived from the underlying ethical decision-making characteristics inherent in the accounting profession’s organizational culture. These ethical decision-making characteristics relate to an individual’s ethics system, ethics application perspective, moral reasoning perspective, and level of moral reasoning. The literature has supported a deontological ethics system, holistic ethics application perspective, orthodox moral reasoning perspective, and conventional level of moral reasoning as appropriate for ethical decision making in the accounting profession. All of these ethical decision-making characteristics point to the use of professional judgment rather than personal judgment in the resolution of accounting ethics dilemmas. The primary goal of this dissertation was to obtain reliable data regarding the impact that ethics instruction, in the form of a 4-hour ethics symposium concerning the provisions of iv the AICPA Code of Professional Conduct, and level of ability have on accounting students’ use of professional judgment. A demographic questionnaire and a pretest/posttest, using the Index of Ethical Congruence, were administered to junior and senior accounting students. The Wilcoxon T-test revealed that a statistically significant difference existed in students’ use of professional judgment before and after exposure to ethics instruction concerning the AICPA Code of Professional Conduct. It also showed that students with higher levels of ability demonstrated greater increases in the use of professional judgment than students with lower levels of ability. v Dedication This dissertation and all the work associated with my doctoral studies are dedicated to my wife, Linda Sullivan, who has supported me wholeheartedly. I am truly blessed by God to have such a wonderful wife who is a constant source of love and encouragement. She has stood beside me in all that God has called me to do; and, for that, I am forever thankful. vi Acknowledgements My family has been exceedingly supportive throughout the research and writing of this dissertation; to each of them, I owe everything. My wife Linda, my sons Adam and Matthew, and my daughter Rachel are the most special people in my life; I appreciate them more than they know. I am also thankful for the excellent dissertation committee chair I have had for this study, Dr. Bruce Winston, and for my committee members, Dr. Michael Hartsfield and Dr. Jacque King. Their patience and guidance have been greatly appreciated. Their insights and constructive recommendations motivated me and helped make this a better piece of scholarly research. For over 17 years, I have been blessed with some of the finest coworkers an individual could have. My fellow faculty members at Liberty University encouraged me, instructed me, and inspired me. I am deeply thankful to Dr. Bruce Bell, Dr. James Shelton, and Dr. Andrew Light for their assistance. Finally, I am most thankful for my Lord and Savior Jesus Christ to whom I owe everything. All that I have been able to accomplish in my life up to this point and all my future successes have and will be because of His great provision. Soli Deo Gloria! vii Table of Contents Abstract..........................................................................................................................iii Definitions....................................................................................................................... x Chapter 1: Introduction...................................................................................................... 1 Theory and Variables.................................................................................................. 3 Relationships of the Variables .................................................................................... 8 Hypotheses .................................................................................................................. 9 Scope......................................................................................................................... 10 Method ...................................................................................................................... 11 Analysis..................................................................................................................... 13 Limitations of the Study ............................................................................................ 13 Chapter 2: Literature Review............................................................................................ 15 Importance of Ethics Instruction .............................................................................. 16 Importance of Professional Judgment ...................................................................... 24 Theory and Variables................................................................................................ 29 Summary of the Literature ............................................................................................ 47 Chapter 3: Method ........................................................................................................... 49 Hypotheses ................................................................................................................ 49 Data Collection......................................................................................................... 50 Summary of Research Design ....................................................................................... 58 viii Chapter 4: Results............................................................................................................. 60 Data Collection......................................................................................................... 60 Statistical Analysis.................................................................................................... 64 Chapter 5: Discussion ....................................................................................................... 72 Impact of Accounting Ethics Instruction on Students’ Use of Professional Judgment ................................................................................................................................... 72 Impact of Ability on Students’ Acquisition of Knowledge ........................................ 73 Model for Course Embedded Assessment in Accounting Courses............................ 74 Recommendations for Future Research.................................................................... 75 References......................................................................................................................... 78 Appendix A....................................................................................................................... 83 Instructions for Completing Questionnaire .............................................................. 83 Accounting Practices Questionnaire ........................................................................ 84 Appendix B ....................................................................................................................... 90 Personal Data Sheet ................................................................................................. 90 Appendix C ....................................................................................................................... 92 IEC Case Support ..................................................................................................... 92 Appendix D....................................................................................................................... 98 Coding Specifications ............................................................................................... 98 ix List of Tables and Figures Figure 1. Model of professional judgment ......................................................................... 8 Figure 2. Two ethical views (Geisler, 1990, p. 24). ......................................................... 34 Figure 3. Model of professional judgment. ...................................................................... 43 Table 1. Accounting GPA, IEC Pretest/Posttest