An auditor’s signature signals to key stakeholders whether a firm’s financial information is to be trusted or not. Their ability to recognize inconsistencies and ethical issues is of paramount importance in this process. But what impacts their ability to identify ethical issues? The study in which we address this question was recently accepted for publication in Managerial Auditing Journal, and below we present our key findings.

Background
Financial scandals such as the Wirecard fraud continue to put ethical decisions of auditors in the public spotlight, while organizations such as the International Federation of Accountants stress the importance of ethical conduct and integrity. In this research project, we are interested in factors that impact auditors’ ethical decisions, and we make use of a novel theory to hypothesize relations between experience, gender and moral awareness.

Unconscious moral decisions
We rely on a neurocognitive approach to decision making (Reynolds, 2006). This approach has as an advantage over other approaches that it does not assume that all decisions we make are per se rational or conscious, but that some decisions can be made on the automatic pilot, i.e. unconscious. This approach argues that a person can make unconscious decisions (such as recognizing that a certain issue is ethically disputable) because it resembles an ethical prototype that this person developed before, when (s)he was confronted with a similar situation.

Reynolds’ (2006) neurocognitive approach argues that experience can help to build and refine ethical prototypes, which in turn play a critical role in unconscious ethical decision making. Following this reasoning, more (refined) ethical prototypes lead to higher levels of moral awareness. To our knowledge, ours is the first study that considers a neurocognitive approach to inform hypotheses about the antecedents of auditors’ moral awareness. In addition, we hypothesize that female auditors have higher levels of moral awareness than males.

Method
We draw on a survey that presented short vignettes of disputable situations to auditors, which they had to score from 1 (never acceptable) to 7 (always acceptable). The survey was sent to a sample of auditors from a Big 4 firm in the Netherlands, which yielded 191 useful responses. Based on these responses, we calculated for each respondent what we coined a moral awareness index (MAI), bringing together their answers for various issues. Using multivariate regressions and mean comparisons, we tested our hypotheses regarding the impact of experience and gender on moral awareness.

Findings and conclusions
The findings related to our three hypotheses can be summarized as follows.
1) Experienced auditors demonstrate higher levels of moral awareness than more junior auditors.
2) This relation between experience and moral awareness is stronger when auditors are confronted with accounting-related situations, compared to other, non-accounting-related situations.
3) Female auditors demonstrate higher levels of moral awareness than their male counterparts.

Our findings show that demographic factors may have an influence on ethical decisions, and suggest that it may benefit ethical decisions if at least some senior and/or female auditors are involved somewhere in the ethical decision-making process. Also, we demonstrate how the neurocognitive approach may help to think about ethical decisions made by auditors that are made either consciously or unconsciously.

This blog was also posted on the website of the European Accounting Association.

References
Carrera, N. and Van der Kolk, B. (2021). Auditor Ethics: Do Experience and Gender Influence Auditors’ Moral Awareness? Managerial Auditing Journal, forthcoming.
Reynolds, S.J. (2006). A neurocognitive model of the ethical decision-making process: implications for study and practice, Journal of Applied Psychology, Vol. 91 No. 4, pp. 737–748.