Can Moral Reasoning Reduce Auditor Misreporting? An Experimental Examination of Investor Salience and an Auditor Sign-Off Requirement

37 Pages Posted: 18 May 2012

See all articles by Allen D. Blay

Allen D. Blay

Florida State University

Eric Sheldon Gooden

affiliation not provided to SSRN

Mark J. Mellon

Northern Illinois University - Department of Accountancy

Douglas E. Stevens

Georgia State University - Robinson College of Business

Date Written: May 16, 2012

Abstract

Researchers have questioned whether individual differences in moral reasoning might partly account for the variation in auditor misreporting behavior documented in prior experimental-markets research in auditing. In the first experimental market study to directly test the relation between moral reasoning and auditor misreporting, however, Schatzberg et al. (2005) find that auditor misreporting is more likely with higher than with lower moral reasoning participants as measured by the DIT (Rest 1979). We re-examine the link between moral reasoning and auditor misreporting by manipulating two factors expected to increase moral reasoning and by using alternative measures of moral reasoning from the JPI-R (Jackson 1994). Using the same experimental audit market setting in Schatzberg et al., we find that auditor misreporting is lower when the investor is another participant in the experiment than when the investor is an abstract robot. Auditor misreporting is also lower when the auditor is required to sign off on the audit report, but only when the investor is another participant. In fact, auditor misreporting essentially disappears when the sign-off requirement is present and the investor is another participant in the experiment. Finally, we find that auditor misreporting is negatively associated with the auditor’s score on two measures of moral reasoning from the JPI-R: Traditional Values and Responsibility. Our results provide strong evidence that moral reasoning can reduce auditor misreporting in a market setting where financial incentives to misreport are present.

Keywords: auditor misreporting, moral reasoning, investor salience, auditor sign-off requirement

JEL Classification: M420, D400, K400, L100

Suggested Citation

Blay, Allen Dennis and Gooden, Eric Sheldon and Mellon, Mark J. and Stevens, Douglas E., Can Moral Reasoning Reduce Auditor Misreporting? An Experimental Examination of Investor Salience and an Auditor Sign-Off Requirement (May 16, 2012). Available at SSRN: https://ssrn.com/abstract=2061730 or http://dx.doi.org/10.2139/ssrn.2061730

Allen Dennis Blay (Contact Author)

Florida State University ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-727-0953 (Phone)

Eric Sheldon Gooden

affiliation not provided to SSRN ( email )

Mark J. Mellon

Northern Illinois University - Department of Accountancy ( email )

College of Business
DeKalb, IL 60115
United States

Douglas E. Stevens

Georgia State University - Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
404-413-7212 (Phone)
404-413-7203 (Fax)

HOME PAGE: http://robinson.gsu.edu/profile/douglas-e-stevens/

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