The Joint Effects of Economic Pressure and Locus of Control on Auditors' Ethical Behavior

Abstract

This study examines the relationship between an economic variable, size of audit fees, and an individual differences variable, locus of control, on auditors' ethical behavior in an audit conflict situation. Eighty auditors from a cross- section of Big 6 and Non-Big 6 CPA firms participate in a study that requires them to respond as to whether they would accede to the client's request in an audit conflict situation. Size of audit fees and locus of control are found to affect their ethical behavior. "Externals" who believe that outcomes are consequences of fate respond more ethically and independently when size of audit fees is significant as they would be more concerned about the economic consequences of the risk of losing the client and the risk of litigation. This interactive relationship between an economic variable and an individual differences variable sheds light on the understanding of factors that affect auditors' ethical behavior.

JEL Classification: M40, M49