Fifteen years after the Enron and WorldCom scandals rocked the accounting profession, CPAs in the largest public accounting firms perceive an improved ethical environment in their industry, according to a study led by two Clemson University researchers.

Derek Dalton

Derek Dalton

More than 900 CPAs in public accounting firms, the corporate environment, private practice, and government entities were surveyed on the state of ethical behavior within their individual areas. The findings of the study changed appreciably for one group of CPAs from a similar survey conducted just prior to the 2001 (Enron) and 2002 (WorldCom) scandals, according to College of Business accountancy researchers Derek Dalton, associate professor, and Robin Radtke, assistant professor.

“The very noticeable change in our survey was that CPAs in Big 4 accounting firms (Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG) perceived a higher ethical environment than they did during the last study. However, CPAs in private practice or embedded in corporate roles perceived no noticeable change within their areas,” said Radtke.

The study, “An Investigation of Ethical Environments of CPAs: Public Accounting Versus Industry,” was published in the American Accounting Association’s spring issue of the journal Behavioral Research in Accounting. The survey showed CPAs from the largest public accounting firms had the highest perception of their ethical environment. Accountants in private practice or corporate roles had a significantly weaker perception of their ethical environment. Government and non-profit CPAs ranked their ethical environment the lowest among those surveyed.

Robin Radtke

Robin Radtke

Dalton and Radtke said the change in perceptions of ethics among Big 4 CPAs is likely a result of their strict adherence to the Sarbanes-Oxley Act of 2002 that reformed financial disclosure practices in an attempt to prevent accounting fraud.

“Sarbanes-Oxley put a strong emphasis on regulation reform, which among other things, increased the emphasis on ethics training,” Dalton said. “The perceptions of a stronger ethical environment may be related to increased training and the fact that their practices may receive more public scrutiny in part because of their high-profile customers.”

Collaborating with Radtke and Dalton on the study were Donna Bobek of the University of South Carolina, Brian Daugherty of University of Wisconsin-Milwaukee, and Amy Hageman of Kansas State University.

The accountants surveyed came from lists compiled by state CPA societies and included 676 employed by public accounting firms, 127 employed in private practice and corporate roles, 62 with jobs in government, and 39 employed by non-profit organizations.

The accountants were asked to respond to 12 statements in such areas as their employers’ ethical values; ethics training programs and punishment for unethical behavior. Respondents’ answers were scored from 1 (strongly disagree) to 7 (strongly agree). The more each respondent agreed with the statements, the higher their level of perceived ethics. Scores could range from 12 to 84.

CPAs at accounting firms had a higher overall perception of ethics in their sector (73.32 mean rating) than accountants in corporate roles (67.0). CPAs in the Big 4 accounting firms had a score of 76.11, while government accountants put their mean rating at 63.81.

Radtke said lower perceptions of an ethical environment among smaller firms and corporate professionals versus public accountants in bigger companies may be more of a function of the firm’s size than anything.

“It isn’t that smaller firms are unethical, but in those environments there aren’t as many people, and a regular cadence of messaging on topics like ethics may not be as pervasive,” Radtke said. “There is a big emphasis on ethics throughout the profession and courses are required, but a constant reminder of it may not exist like it does in an environment with more employees.”

The researchers also attributed the higher perceived ethical environment among Big 4 public accountants to two things – the potential to lose reputational capital without a strong ethical environment and greater litigation risks.

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