Management Decision

Auditors' moral philosophies and ethical beliefs

Fan-Hua Kung Cheng Li Huang
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Fan-Hua Kung Cheng Li Huang, (2013),"Auditors' moral philosophies and ethical beliefs", Management Decision, Vol. 51
Iss 3 pp. 479 - 500
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Auditors’ moral
Auditors’ moral philosophies and philosophies
ethical beliefs
Fan-Hua Kung and Cheng Li Huang
Department of Accounting, Tamkang University, Taipei, Taiwan 479
Abstract
Purpose – The purpose of this paper is to investigate the influence of moral philosophy on the ethical
beliefs of auditors. The paper argues that an individual’s moral philosophy is the key factor in how one
views ethical issues and largely determines the ethical choices one makes. The paper also seeks to
discover the influence of personal values on the reasoning processes associated with ethics and to
explore whether the personal value preferences of auditors, as a manifestation of their moral
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philosophy, influence their ethical beliefs and (presumably) their subsequent actions.
Design/methodology/approach – The authors designed a survey instrument to assess the value
preferences, moral philosophies, and reactions of practicing auditors to judgment dilemmas. They then
employed structural equation modeling to examine the sensitivity of auditors to the competence and
integrity of clients with the aim of gaining insight into the ethical beliefs of auditors in general.
Findings – These results show that value preferences alone fail as predictors of ethical beliefs.
Instead, personal values have an indirect influence on ethical beliefs via moral philosophy. Moreover,
auditors strongly motivated by values based on self-enhancement were negatively associated with
idealism in ethics and positively associated with relativism. Therefore, it can be concluded that idealist
auditors were more likely to condemn the actions of clients that violated moral norms, while relativist
auditors were more permissive.
Originality/value – The results identify the role of moral philosophy as a mediator for the personal
values and ethical beliefs of auditors, shedding light on how personal values can influence ethical
sensitivity.
Keywords Auditors, Personal values, Moral philosophy, Ethical ideology, Ethical beliefs, Values
Paper type Research paper

Introduction
A spate of corporate scandals in recent years has raised public awareness regarding
the ethical decisions faced by auditors. Audit failures have attracted wide publicity and
tarnished the reputation of the profession, dissolving the respect and trust previously
bestowed on auditors. Despite the numerous regulations that have been established to
prevent or halt unethical activities, fraudulent conduct continues to make its way into
the corporate sphere. However, stringent regulation is not the only means to resolve
this problem. Auditors play the role of gatekeepers in monitoring decision-relevant
information and are obliged to fulfill their responsibilities in a professional manner
(Cohen et al., 1996; Satava et al., 2006). Cohen and Pant (1991) asserted that it is
imperative that auditors align their actions with the highest ethical standards.
Most cases involving manager-auditor collusion stem from a conflict of interest
(Moore and Scott, 1989; Baiman et al., 1991). Rather than safeguarding the interests of
stakeholders, auditors occasionally make compromises and fail to fulfill their Management Decision
Vol. 51 No. 3, 2013
obligation to remain objective in their assessment and honest in their reporting pp. 479-500
(Cullinan, 2004; Miller and Bahnson, 2004). Somewhere within this process, auditors q Emerald Group Publishing Limited
0025-1747
disregard the two most important qualities: independence and objectivity. Such actions DOI 10.1108/00251741311309616
 MD have resulted in tremendous costs affecting the auditing profession, the capital market,
51,3 and society as a whole.
Regulating the auditing profession by means of a clenched fist would function (at
best) as a warning. The real determinants in (un)ethical behavior are the ethical beliefs
held by individual auditors. Only when auditors are correctly positioned on the scale of
ethics will their conduct be ethically appropriate. When one’s moral compass has gone
480 askew, no legislation is powerful enough to prevent misdeeds. In other words, a
strengthening of regulations is insufficient to prevent corporate transgressions. The
ethical code of individuals represents the last line of defense.
The objective of this paper is to investigate the influence of moral philosophy on the
ethical beliefs of auditors. We argue that individual’s moral philosophy is the key
factor in how one views ethical issues and largely determines the ethical choices they
make. We also seek to discover the influence of personal values on the reasoning
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processes associated with ethics and explore whether the personal value preferences of
auditors, as a manifestation of their moral philosophy, influence their ethical beliefs
and (presumably) their subsequent actions.
Rest (1986) proposed a four-component model of ethical decision-making involving
the recognition of moral issues, ethical judgment, behavior intentions, and ethical
behavior. This widely accepted model provides a framework for ethical reasoning
processes in the context of business (Cohen et al., 1996). It was incorporated in the model
of Hunt and Vitell (1993) and the issue-contingent model proposed by Jones (1991). Hunt
and Vitell (1993) pointed out that one’s moral philosophy plays a dominant role in
making ethical decisions. Thus, the moral sensibility of auditors is a key element in an
integrated model of ethical reasoning, which largely determines their sensitivity to the
ethically questionable practices of their clients (Shafer et al., 2001; Jones et al., 2003).
The Hunt-Vitell model and Ferrell and and Gresham’s (1985) ethical
decision-making model consider personal values as antecedents to a more general
moral outlook with the power to influence the reasoning processes associated with the
evaluation of ethical issues. As demonstrated extensively in the literature related to
ethical decision-making in a business context, personal values also play an influential
role in perceived moral intensity (Shafer et al., 2001; Steenhaut and Van Kenhove, 2006;
Shafer et al., 2007).
Ethical judgments also play a role in the application of accounting skills. The ethical
dilemmas faced by auditors when encountering situations of a dubious ethical nature
test the impact of their own moral standards and ethical beliefs, which consequently
influences their judgment and behavior ( Jones, 1991). Most studies dealing with this
issue have addressed the ability of practitioners and accounting students to identify an
ethical dilemma (Shaub et al., 1993; Shaub and Lawrence, 1996; Cohen et al., 1996;
Cohen et al., 2001; Patterson, 2001). Wright et al. (1997) investigated the value
preferences of auditors and found support for the hypothesized influence of values on
perceived moral intensity. Shafer et al. (2001) targeted auditors in their investigation
related to the influence of personal values on ethical decision-making. They determined
that the values of auditors do not influence the manner with which auditors deal with
ethical dilemmas (including pressure from clients). Several recent studies have
addressed the same issue, but failed to take into account the influence of moral
philosophies and social desirability response (Wright et al., 1997; Shafer et al., 2001;
Karacaer et al., 2009).
 Steenhaut and Van Kenhove (2006) examined the relationships among personal Auditors’ moral
values, moral philosophies, and ethical beliefs, and this paper is structured according philosophies
to the concepts they laid out. We designed a survey instrument to assess the value
preferences, moral philosophies, and reactions of practicing auditors to judgment
dilemmas. We then employed structural equation modeling to examine the sensitivity
of auditors to the competence and integrity of clients with the aim of gaining insight
into the ethical beliefs of auditors in general. 481
The following section will provide a review of selected literature and the
development of research hypotheses. This section will be followed by discussions of
the research methodology and empirical findings. The final section provides a brief
discussion and conclusions.

Literature review and hypotheses

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Auditors’ ethical beliefs and social expectations

The services provided by auditors can have a far-reaching influence. For many years,
investors have relied on audited financial statements to make sound investment
decisions. Thus, auditors are obliged to protect the interests of investors, taking on the
role of gatekeepers (Kane, 2004). In recent years, countries around the world have
witnessed examples of corporate fraud. The Sarbanes-Oxley Act, passed by the US
Congress in the wake of such scandals, is considered the most influential act with the
greatest impact on auditing professionals. This is an example of a government’s
attempt to halt corporate fraud by improving corporate governance and strengthening
the function of auditing, as a means to restore trust. However, quality and integrity lie
beyond the scope of legal regulations. Although the act may be effective in plugging
legal loopholes, explicit mandates alone are insufficient to prevent similar scandals in
the future. Verschoor (2004) lamented recent scandals in which corporate leaders and
auditors infringed on the rights of investors, pointing out that any individual who fails
to consider the ethical implications of his actions can always come up with new ways
to evade the law.
Gendron et al. (2006) pointed out that auditors are no longer obliged to adhere to a
Code of Ethics, such as maintaining independence and emotional distance from clients,
to compel ethical behavior. Preston et al. (1995) argued that ethical values central to
auditors are being eroded, in part because they have allowed their greed to override
professional objectivity. In the past, auditor independence was considered as an ethical
issue; these days, auditor independence has become the target of regulations, to be kept
in check by government reviews and inspections (Gendron et al., 2006). Although the
Code appears to reduce ethical ambiguity, both auditors and regulators have
acknowledged the fact that no code alone can be a silver bullet (Preston et al., 1995).
Douglas et al. (2001) argued that such codes curtail the ethical judgment of auditors if
the ethical issues are not explicitly covered by the code.
Gaa (1992) mentioned that ethical beliefs compel auditors to base their ethical
judgments on high ethical intensity. Auditors that are more developed ethically are
more inclined to exercise ethical judgments; and they are less likely to succumb to
pressure from clients (DeZoort and Lord, 2001; Windsor and Ashkanasy, 1995; Libby
and Thorne, 2007).
Cohen et al. (2001) defined ethical decisions as the decisions one makes when
confronted with a conflict requiring ethical judgments based on issues of morality.
 MD Individual differences in personal values and moral philosophy are believed to play a
51,3 key role in ethical beliefs (Steenhaut and Van Kenhove, 2006). Although the technical
knowledge of auditors is essential to making accurate assessments, regarding the
ethical nature of the behaviors they encounter, ethical intensity is particularly
important in situations that are not covered by an established code (Ponemon, 1993).

482 Personal values

Personal values can be defined as “an enduring belief that a specific mode of conduct or
end-state of existence is personally or socially preferable to an opposite or converse
mode of conduct or end-state of existence” (Rokeach, 1973, p. 5). Personal values can be
viewed as the determinants of human behavior as reflected in three universal
requirements: biological needs, coordinated social interaction, ensuring the welfare of
the group (Schwartz, 1992).
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Schwartz and Sagiv (1995) derived a typology of values in a social context and
distinguish ten types of values based on motivation. Their theory illustrates the
motivational continuum between different types of values and how they conflict or
conform. The ten types of values can be further grouped into two basic bipolar
dimensions. The first dimension is conservation versus openness to change, in which
values are adopted in terms of the extent to which they motivate people to preserve the
status quo and the certainty it provides in relationships with close others, institutions,
and traditions versus making exceptions to accepted rules according to whim and the
expediency of the moment (Schwartz, 1992). The motivational values associated with
higher order conservation are tradition, conformity and security; self-direction and
stimulation for openness to change.
The second dimension is self-enhancement versus self-transcendence, in which
values are adopted in terms of the extent to which they motivate people to enhance
their own personal interests (even at the expense of others) versus to transcend selfish
concerns and promote the welfare of others, close and distant (Schwartz, 1992). The
value types pertaining to higher order self-enhancement are power and achievement;
and universalism and benevolence for self-transcendence.
Steenhaut and Van Kenhove (2006) suggest that conservation and
self-transcendence might be in line with ethical disposition, while openness to
change and self-enhancement conform to an unethical disposition. Rallapalli et al.
(1994) discovered that individuals with a high propensity to take risks and a strong
need for autonomy, innovation, and aggression tend to be less ethical, whereas
individuals with a strong need to follow socially desirable behavior and those with
strong problem solving coping styles tend to be more ethical. In addition,
Machiavellianism represents a preference for self-enhancement with less concern for
traditional morality, maintaining that individuals are likely to conduct unethical
activities when driven by self-interest (Erffmeyer et al., 1999; Van Kenhove et al., 2001).
In a recent study, Hunt and Vitell (1993) included personal values in their ethical
decision model and assumed that values influence ethical judgment and decision
making in the business context. Brief et al. (1996) investigated the influence of personal
values on ethical behavior and found that personal values are useful for understanding
work-related behavior. Patterson (2001) investigates the influence of regulatory,
organizational, and personal constructs on ethical sensitivity. The results show that
the regulatory and organizational environment is significantly associated with the
 personal values of auditors, but does not influence their ethical sensitivity. Wright et al. Auditors’ moral
(1997) argued that personal value preferences influence ethical judgment and behavior philosophies
through their effect on the perceived moral intensity of an ethical dilemma.
Therefore, we hypothesize that the motivational differences between various types
of values influence the perceptions of auditors with regard to the moral intensity of an
ethical dilemma and influence their ethical reasoning process. We postulate that
auditors with a stronger preference for conservation, submissive self-restriction, 483
preservation of traditional practices, and protection of stability are more likely to be
intolerant of the unethical behavior of clients, compared with auditors who are more
open to change. In addition, we hypothesize that auditors with a stronger preference for
self-enhancement and a pursuit of success and dominance over others are more likely
to be tolerant of the unethical behavior of clients, compared with auditors who prefer
self-transcendence. Thus, based on the previous discussion, we propose the following
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hypotheses:
H1. Auditors with personal values that include a preference for conservation are
more intolerant of unethical behavior than their open to change counterparts.
H2. Auditors with personal values that include a preference for self-enhancement
(even at the expense of others) are more tolerant of unethical behavior than
their self-transcendental counterparts.

Moral philosophy
Schlenker and Forsyth (1977) assumed that an individual’s moral philosophy, or ethical
ideology, is the key factor in ethical judgments. Forsyth (1980) conceptualized a
two-dimensional view of moral philosophy to identify the ethical judgments of
individuals: i.e. idealism or relativism. Idealism is a personal belief in moral absolutes,
such that all ethical judgments are based on ethical principles and the right actions
leads to expected results. Individuals with strong idealistic principles avoid engaging
in activities that conflict with their beliefs, while those who adopt a less idealistic
stance pragmatically assume that good is often mixed with bad and therefore do
adhere to the strict application of a moral code to conduct. Conversely, when resolving
ethical problems, highly relativist individuals refuse to formularize or rely on universal
ethical principles. When forming judgments about others, they seek to evaluate the
immediate event itself grounded more in skepticism than ethical principles. Less
relativistic individuals, emphasize the importance of universal moral rules.
Collectively, idealism and relativism may offer some answers in the search for
individual differences in the process of making ethical decisions.
Numerous studies have verified the argument of Forsyth (1980, 1992), stating that
idealism and relativism influence the ethical judgment of individuals engaged in
business practices (e.g. Ferrell and Gresham, 1985; Hunt and Vitell, 1986; Vitell et al.,
1991; Barnett et al., 1996; Rawwas, 1996). Shaub et al. (1993) investigated the
relationship between moral philosophy and ethical sensitivity and found that highly
relativistic auditors were less likely to identify an ethical dilemma than their idealistic
counterparts. However, Shaub and Lawrence (1996) found no significant association
between moral philosophy and professional skepticism. More recently, Steenhaut and
Van Kenhove (2006) examined the relationship between moral philosophy and ethical
beliefs, concluding that idealism is associated with a stronger sense of morality and
 MD relativism is associated with a weaker sense of morality. Therefore, we hypothesize
that individuals with idealist views endorse the need to make decisions based on moral
51,3 principles; therefore, idealist auditors are more likely to condemn the actions of clients
that violate moral norms. Relativistic individuals tend to espouse a moral philosophy
based on personal whims or the expediency of the moment; therefore, relativistic
auditors are more permissive toward unethical behavior, giving rise to the following
484 hypotheses:
H3. Idealism has a positive influence on whether auditors will condemn unethical
behavior of client.
H4. Relativism has a negative influence on whether auditors will condemn
unethical behavior of client.
Moral philosophy refers to the cognitive-developmental principles employed by an
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individual when evaluating ethical issues. Personal values preferences may also act as
a manifestation of the moral philosophy and ethical beliefs (Hunt and Vitell, 1993;
Kleiser et al., 2003; Steenhaut and Van Kenhove, 2006).
In prior research, moral philosophy has been linked to a concern for ethical
decisions (Shaub et al., 1993; Shaub and Lawrence, 1996). Highly idealistic individuals
adhere to moral absolutes and traditional norms when making an ethical judgment and
are less willing to make exceptions to moral guidelines. Unethical behavior involves
breaking traditional patterns of behavior and violating ethical norms. Hence, idealistic
auditors are more likely to endorse conservative values with regard to ethical issues. In
contrast, highly relativistic individuals embrace a moral philosophy based on
skepticism. They tend to reject absolute moral rules to guide behavior and weigh the
circumstances more than the moral principle. Unethical behavior involves promoting
personal interests, with little regard for the ethical validity of the action. Hence,
relativistic auditors seek only to determine whether the action yields a positive
outcome in a given situation.
Singhapakdi and Vitell (1993) applied Kahle’s (1983) List of Values as the
framework for their study on ethics in a business context, demonstrating a positive
association between idealism and conservation; and a positive association between
relativism, openness to change, and self-enhancement. Rallapalli et al. (2000) identified
a negative association between deontology, openness to change, and self-enhancement.
Based on a review of previous studies, one can conclude that individuals who fall
within the dimension of conservation (as opposed to openness to change) are more
likely to be idealistic, whereas those associated with self-enhancement (as opposed to
self-transcendence) are more likely to be relativists.
Therefore, we hypothesize that conservative values are positively associated with
idealism and negatively associated with relativism. Moreover, auditors strongly
motivated by values based on self-enhancement are negatively associated with
idealism in ethics and positively associated with relativism. This paper proposes the
following hypotheses:
H5. Auditors with personal values tending toward the conservation will be
positively associated with idealism and negatively associated with relativism.
H6. Auditors with personal values tending toward self-enhancement will be
negatively associated with idealism and positively associated with relativism.
 Methodology Auditors’ moral
This study designed a survey instrument to reveal the influence of personal values and philosophies
moral philosophy on the ethical beliefs of auditors. The survey included ethical
dilemma vignettes, and questions related to personal values, moral philosophy, and
social desirability response.

Ethical beliefs in earnings management 485

We adopted a multiple vignette approach using the presentation of fictional issues
related to unethical earnings management, in order to measure the judgment of
auditors and their attitudes toward ethically sensitive scenarios. Studying auditor
responses to such scenarios enabled the researchers to analyze how auditors evaluate
the ethical implications related to the competence and integrity of their clients. This
section comprised five pairs of anecdotes dealing with clients engaged in financial and
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earnings management. For an overview of the anecdotes, please refer to Table I.

Scenarios in Group A depict clients actively engaged in fraudulent activities and
facing the legal consequences of such actions. Scenarios in Group B depict clients who
have not violated the law, but border on transgression by actively engaging in
management practices that appear dubious. Scenarios 1, 2, 4, and 5 depict clients
engaged in earnings management using accrual-based and real activities
manipulations. Scenario 3 involves clients engaged in suspicious capital transfers
and arbitrage behavior. To reduce the halo effect, every questionnaire item was
followed by a set of check questions with which to solicit the opinions of respondents.
We adopted a seven-point Likert scale using the following designations: “very
appropriate”, “normal”, and “very inappropriate” with smaller numbers representing
stronger feelings of disagreement or disapproval.

Personal values
We employed the Schwartz Value Survey (SVS) to assess the value preferences of
auditors, based on 56 value items representing ten value types related to motivation
(Schwartz, 1992). To represent the degree of importance, the SVS provides a nine-point
measurement scale ranging from 2 1 to 7 using the following labels: “opposed to
respondent’s values”, “not important”, “important”, and “the most important”. Higher
scores indicate stronger agreement with the value item.

Moral philosophy
We used the Ethical Position Questionnaire (EPQ) by Forsyth (1980) to assess the
personal moral philosophy of the auditors. The EPQ contains 20 item scales measuring
idealism and relativism. For each item, respondents were asked to indicate their degree
of agreement using a seven-point Likert scale in which point 1 means “completely
disagree”, 4 “no opinion” and 7 “completely agree”.

Social desirability response

We employed the Marlowe-Crowne (MC) scale to minimize social desirability bias, which
arises when respondents act in a manner that is not in alignment with their natural
inclinations in order to appear more socially approved (Crowne and Marlowe, 1960;
Randall and Fernandes, 1991). Due to time constraints, we employed the short Form C
(MC-C), a 13-item alternate version of the MC proposed by Reynolds (1982). Answering
 MD Factor
51,3 Ethical belief loadings
Illegal activities B1a The company is expecting a large-sum sales transaction at year
end, under the condition of FOB destination. A deliberate pre-
entry will be made prior to the arrival of shipment to increase the
net income for the period 0.734 *
486 B2a The company arranges for its associates with substantial
interest at stake (but are not its subsidiaries) to conduct the
transaction, by way of which to tweak the numbers in the
financial statement 0.762 *
B3a The company issues Euro-Convertible Bond (ECB). It uses its
offshore shadow companies to obtain loans from banks abroad.
The company uses the new money to purchase of all its ECBs
and subsequently wires the capital earned back to its offshore
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banks. The company also releases bullish news throughout the

process to boost its share prices, before converting its ECBs into
equities to accomplish arbitrage 0.673 *
B4a Financial institutions often list fewer bad debts for short and
long term loans with default concerns to maintain share prices
and avoid huge declines in net profit and asset values 0.786 *
B5a To avoid dramatic declines in share prices, the company insists
on not recognizing impairment losses for assets whose values are
estimated to be impaired 0.741 *
Dubious behavior B1b As the economy recovers, the company’s sales this year has
enjoyed vast improvement compared with last year. However,
the billing and shipping for some large-sum sales transactions
scheduled at the end of this year will be postponed till next year,
to stave off poor performance in the upcoming year 0.665 *
B2b The company deliberately holds 19 percent of equities in its
influential subsidiaries to deflect the huge impact that
investment income may have on net profit, and also to
circumvent equity method 0.662 *
B3b A tarnished reputation makes it difficult for the company to raise
capital by way of public offerings; it then turns to its associates
for private placement. During this period the company
encourages people to purchase its shares by driving up their
prices and enjoys the subsequent financial gains 0.720 *
B4b Financial institutions divide the recognition of losses induced by
non-performing loans into five years, based on The Financial
Institution Merger Act, to avert any immediate impact on net
profit. (Such action violates the Generally Accepted Accounting
Principles) 0.520 *
B5b During asset evaluation at the end of year, the company
deliberately selects the most favorable valuation report to evade
Table I. recognition of huge impairment losses 0.636 *
Reliability assessment for
ethical belief items and Note: *p , 0.01; x 2 ¼ 82.977; x 2/df ¼ 2.514; p ¼ 0.000; RMR ¼ 0.046; GFI ¼ 0.953; AGFI ¼ 0.922;
goodness-of-fit RMSEA ¼ 0.067; NFI ¼ 0.940; CFI ¼ 0.963; IFI ¼ 0.963

“False” for negative items and “True” for positive items indicates the degree to which the
social desirability response influences respondents. One point is given for every “True”
answer, while each “False” answer receives minus one point. Scores for negative items
are tallied in reverse order. The higher the score on the MC scale, the more amenable the
 respondent is to social influence, thereby identifying those likely to engage in low-risk Auditors’ moral
behavior and avoid evaluations by others (Crowne, 1979). philosophies
Sample and procedure
The data for this study were collected from a questionnaire survey of auditors working
for the Big 4 auditing firms in Taiwan. Prior to administering the survey, a pilot test
was conducted, in which draft questionnaires were given to graduate and doctoral 487
students in accounting, as well as professionals with a background in auditing. A total
of thirty pilot questionnaires were distributed. Items identified as either confusing or
misleading were modified. The Cronbach’s a for sections related to personal values,
moral philosophy, and ethical beliefs were above 0.7, indicating good reliability.
Due to the complexity of the content in the questionnaire, the collection of data via
postal delivery would pose considerable uncertainty. Therefore, this study adopted
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location-based distribution, using auditors who are currently active in the Big 4 firms
at their place of work as a communication port, to distribute and collect the
questionnaires. Considering the heavy workload of auditors and the frequent fieldwork
involved, the designated timeframe for a response was set at eight weeks with
follow-up reminders when necessary.
A total of 608 questionnaires were distributed, which resulted in the collection of
377 questionnaires, for a response rate of 62 percent. Among the returned
questionnaires, those with unanswered items or those with unanimous answers for
a single section were considered invalid. After eliminating the invalid questionnaires,
336 valid questionnaires were retained, for a valid response rate of 55 percent. As for
demographics, most of the respondents were female (64 percent), the majority of whom
were between the ages of 26 and 40 (61.8 percent), with at least a four year college
degree (99.4 percent). Most of the respondents were managers, senior, and staff
auditors (81.2 percent). Many had at least four years of auditing experience (32.2
percent). Most of the respondents had no religious beliefs (57.9 percent).
This paper employed structural equation modeling to test the theoretical model.
Rather than testing individual relationships between constructs, SEM tests alternative
model structures and relationships between sets of constructs, incorporating the use of
moderators and mediators as necessary (Kline, 2010).

Results
Reliability and validity analysis
The Cronbach’s a for items related to personal values, moral philosophy, and ethical
beliefs fell between 0.7 and 0.9, indicating high reliability with the single exception of
hedonism, which fell below 0.7. Nonetheless, items addressing hedonism fell within the
acceptable range of 0.5 and 0.7. Overall, the results indicate a satisfactory level of
univariate reliability (Hair et al., 1998).
Table II shows the reliability assessment for items related to personal values and
goodness-of-fit. Chin (1998) suggested that the standardized path coefficient of variables
should exceed 0.7. However, when other variables within the same measurement model
exhibited greater factor loadings, a factor loading between 0.5 and 0.6 was considered
acceptable. The saturated model was used as a benchmark to assess the goodness-of-fit
and provide a starting point from which to begin trimming to obtain a more
parsimonious model (Kline, 2010). Following this assessment, 32 of the 56 items related
 MD
Factor
51,3 Value type Value items loadings Goodness-of-fit

Power Social power 0.697 * Saturated model

Authority 0.844 *
Preserving
488 my public
image 0.541 *
Achievement Capable 0.851 * x 2 ¼ 0.536; x 2/df ¼ 0.268; p ¼ 0.765; RMR ¼ 0.011;
Ambitious 0.696 * GFI ¼ 0.999; AGFI ¼ 0.996; RMSEA ¼ 0.000;
Intelligent 0.793 * NFI ¼ 0.999; CFI ¼ 1.000; IFI ¼ 1.003
Self-respect 0.725 *
Hedonism Pleasure 0.665 * Saturated model
Enjoying life 0.638 *
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Stimulation A varied life 0.857 * Saturated model

Daring 0.891 *
An exciting
life 0.756 *
Self-direction Freedom 0.616 * Saturated model
Choosing own
goals 0.674 *
Independent 0.783 *
Universalism A world of
beauty 0.764 * Saturated model
Social justice 0.769 *
A world at
peace 0.628 *
Benevolence Responsible 0.744 * Saturated model
Loyal 0.801 *
Honest 0.803 *
Tradition Devout 0.731 * Saturated model
Respect for
tradition 0.566 *
Detachment 0.507 *
Conformity Politeness 0.736 * x 2 ¼ 2.374; x 2/df ¼ 1.187; p ¼ 0.305; RMR ¼ 0.027;
Honoring of GFI ¼ 0.996; AGFI ¼ 0.982; RMSEA ¼ 0.024;
parents and NFI ¼ 0.995; CFI ¼ 0.999; IFI ¼ 0.999
elders 0.651 *
Obedient 0.787 *
Self-discipline 0.722 *
Security Social order 0.654 * x 2 ¼ 6.374; x 2/df ¼ 3.187; p ¼ 0.041; RMR ¼ 0.051;
Family GFI ¼ 0.990; AGFI ¼ 0.951; RMSEA ¼ 0.081;
security 0.672 * NFI ¼ 0.980; CFI ¼ 0.986; IFI ¼ 0.986
Healthy 0.744 *
Sense of
belonging 0.595 *
Table II.
Reliability assessment for Notes: * p , 0.01; x 2 ¼ chi-square; x 2/df ¼ normed chi-square; RMR ¼ root mean squares residual;
personal value items and GFI ¼ goodness-of-fit index; AGFI ¼ adjusted GFI; RMSEA ¼ root mean square error of
goodness-of-fit approximation; NFI ¼ normed fit index; CFI ¼ comparative fit index; IFI ¼ incremental fit index
 to personal values were retained. All measurement models qualified for goodness-to-fit Auditors’ moral
indices, with the exception of security, which had a chi-square degree of freedom philosophies
(x2=df ¼ 3:187) exceeding 3, which only slightly exceeded the desirable figure. All
constructs demonstrated reasonable individual item reliability and goodness of fit.
If the model’s goodness-of-fit indices related to moral philosophy and ethical beliefs
failed to meet desirable standards, the measuring variables with the lowest factor
loading were also eliminated in sequence. Tables I and III present the evaluation 489
results of the model. The goodness-of-fit indices for moral philosophy all reached the
recommended value and the model for evaluating ethical beliefs was in line with
accepted standards. Similar to the reliability of individual items, moral philosophy and
ethical beliefs both demonstrated significance, presenting factor loadings within the
desirable range. Thus, the reliability and goodness-of-fit for individual items of moral
philosophy and ethical beliefs are satisfactory.
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Table IV presents the structural reliability and average variance extracted from
each measurement model, juxtaposing the Cronbach’s a with the 32 remaining items
related to personal value from the evaluation of the model. Although dropping the
measuring variables with low factor loadings reduced the a values, they remained
between the accepted standard of 0.7 to 0.9. The reliability of tradition (0.625) and
hedonism (0.596) were below 0.7, which is considered acceptable. These values indicate

Factor
Moral philosophy loadings

Relativism Moral standards should be seen as being individualistic; what one

person considers being moral may be judged to be immoral by
another person 0.703 *
Different types of moralities cannot be compared as to rightness 0.711 *
What is ethical for everyone can never be resolved since what is
moral or immoral is up to the individual 0.832 *
Moral standards are simply personal rules which indicate how a
person should behave, and are not to be applied in making judgments
of others 0.646 *
Ethical considerations in interpersonal relations are so complex that
individuals should be allowed to formulate their own individual codes 0.558 *
Idealism Risks to another should never be tolerated, irrespective of how small
the risks might be 0.613 *
The existence of potential harm to others is always wrong,
irrespective of the benefits gained 0.797 *
One should never psychologically or physically harm another person 0.770 *
One should not perform an action that might in any way threaten the
dignity and welfare of another individual 0.847 *
If an action could harm an innocent other, then it should not be done 0.781 *
It’s never necessary to sacrifice the welfare of others 0.633 *
x 2 ¼ 111.304; x 2/df ¼ 2.588; p ¼ 0.000; RMR ¼ 0.114; GFI ¼ 0.943; AGFI ¼ 0.913; RMSEA ¼ 0.069;
NFI ¼ 0.931; CFI ¼ 0.956; IFI ¼ 0.956
Table III.
Notes: * p , 0.01; x 2 ¼ chi-square; x 2/df ¼ normed chi-square; RMR ¼ root mean squares residual; Reliability assessment for
GFI ¼ goodness-of-fit index; AGFI ¼ adjusted GFI; RMSEA ¼ root mean square error of moral philosophy items
approximation; NFI ¼ normed fit index; CFI ¼ comparative fit index; IFI ¼ incremental fit index and goodness-of-fit
 MD
Cronbach’s Composite Average variance
51,3 Constructs Variables a reliability extracted

Personal value Power 0.731 0.742 0.500

Achievement 0.850 0.852 0.591
Hedonism 0.596 0.596 0.425
490 Stimulation 0.872 0.874 0.700
Self-direction 0.760 0.734 0.482
Universalism 0.764 0.766 0.523
Benevolence 0.826 0.826 0.613
Tradition 0.625 0.633 0.371
Conformity 0.815 0.816 0.527
Security 0.761 0.762 0.447
Table IV.
Moral philosophy Relativism 0.819 0.822 0.484
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Reliability assessment for

Idealism 0.879 0.881 0.555
value types, moral
philosophy and ethical Ethical belief Illegal activities 0.858 0.858 0.548
belief Dubious behavior 0.776 0.778 0.415

that overall structural reliability is good. For the average variance extracted, Fornell
and Larcker (1981) suggested that composite reliability should generally be above 0.5
and most of the measurement variables passed this standard. Therefore, the reliability
of constructs in this study is considered sound.
Schwartz and Boehnke (2004) pointed out that hedonism is related to both
self-enhancement and openness to change, but is more closely related to openness to
change. In contrast, Feather (1995) and Steenkamp et al. (1999) placed hedonism within
the dimension of self-enhancement; therefore, this study separately examined the
structural reliability and average variance of hedonism within the dimensions of
self-enhancement and openness to change. Table V indicates that hedonism varies little

Hedonism under openness to

Hedonism under self-enhancement change
Construct Factor loadings Factor loadings

Conservation 0.887 * 0.902 *

Self-enhancement 0.797 * 0.806 *
Openness to change 0.733 * 0.738 *
Self-transcendence 0.848 * 0.834 *
Composite reliability 0.890 0.892
Average variance extracted 0.670 0.676
Goodness-of-fit x 2 ¼ 2.368, x 2/df ¼ 2.368, x 2 ¼ 12.790, x 2/df ¼ 12.790,
p ¼ 0.124, RMR ¼ 0.009, p ¼ 0.000, RMR ¼ 0.021,
GFI ¼ 0.996, AGFI ¼ 0.965, GFI ¼ 0.982, AGFI ¼ 0.816,
RMSEA ¼ 0.064, NFI ¼ 0.997, RMSEA ¼ 0.188, NFI ¼ 0.985,
Table V. CFI ¼ 0.998, IFI ¼ 0.998 CFI ¼ 0.986, IFI ¼ 0.986
Hedonism under
self-enhancement and Notes: * p , 0.01; x 2 ¼ chi-square; x 2/df ¼ normed chi-square; RMR ¼ root mean squares residual;
openness to change GFI ¼ goodness-of-fit index; AGFI ¼ adjusted GFI; RMSEA ¼ root mean square error of
dimensions approximation; NFI ¼ normed fit index; CFI ¼ comparative fit index; IFI ¼ incremental fit index
 from self-enhancement and openness to change, in terms of structural reliability and Auditors’ moral
the average variance extracted, both of which are above the recommended values. philosophies
However, hedonism exhibits better goodness-of-fit within the dimension of
self-enhancement. In accordance with these results, we subsumed hedonism within
the dimension of self-enhancement.
To avoid subjectivity in determining the magnitude of unethical actions between
Groups A and B, we designed the questionnaire for ethical beliefs with manipulation 491
checks after each item. We then employed the chi-square test for goodness-of-fit to
understand whether respondents had the same perceptions of illegality as those
adopted by the authors of the study. The statistical results reveal that the perceptions
of respondents related to ethical dilemmas conforms to those of the authors, which
eliminated concerns related to subjectivity as to the magnitude unethical actions. This
study also conducted a paired-sample t-test on the five groups of anecdotes, revealing a
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significant correlation as well as variations between perceptions of the two anecdotes

in each group. This provides further evidence that this approach to the evaluation of
ethical beliefs is ideal.

Assessment of the measurement model

Kline (2010) suggested that as long as a correlation coefficient between a pair of
constructs does not exceed 0.85, a degree of discriminant validity can be claimed.
Table VI shows the correlation coefficients between the dimensions of moral
philosophy, ethical beliefs, and social desirability response. The correlations between
conservatism and self-enhancement (r ¼ 0:713), conservatism and self-transcendence
(r ¼ 0:752), and self-enhancement and openness to change (r ¼ 0:739) all exceeded 0.7.
According to Perrinjaquet et al. (2007), the problem of multicollinearity is evident in
SVS; therefore, the study implemented a multicollinearity diagnostic method. The
results reveal that the variance inflation factor (VIF) of the dimensions is below 10,
thereby excluding the problem of multicollinearity.

Structural equation modeling analysis

The hypothesized structural causal model was tested using SEM. We performed a test
of the overall model as well as tests of the individual relationships among constructs.
The paper presents two constructs: exogenous latent variables (personal values) and
endogenous latent variable (ethical beliefs). Moral philosophy served as an intervening
variable that takes on the dual role of both an exogenous and endogenous latent
variable.
Figure 1 displays the SEM analysis. This study conducted a goodness-of-fit test on
the overall model using absolute, incremental, and parsimonious fit measures (Bollen,
1989; Hair et al., 1998). The results demonstrate that the fit indicator of the overall
model in Table VII lies within the desirable range, indicating a good fit (Bagozzi and
Yi, 1988).
The findings related to the influence of personal values on ethical beliefs are as
follows. Conservative values (tradition, conformity and security) were positively
associated with sensitivity to clients’ engaging in illegal activities and dubious
behavior. Although this positive association was expected, neither of the items reached
the level of significance (g1;1 ¼ 0:058; g2;1 ¼ 0:039, p . 0:1). Conversely, stronger
values related to self-enhancement (power, achievement and hedonism) were
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MD
51,3

492

responses
Table VI.

between value
dimensions, moral

and social desirability

Correlation coefficients

philosophy, ethical beliefs

Socially
Self- Self- Openness Illegal Dubious desirable
Conservation enhancement transcendence to change Idealism Relativism activities behavior responding

Conservation 1
Self-enhancement 0.713 * * 1
Self-transcendence 0.752 * * 0.667 * * 1
Openness to change 0.639 * * 0.739 * * 0.637 * * 1
Idealism 0.384 * * 0.204 * * 0.317 * * 0.174 * * 1
Relativism 0.158 * * 0.238 * * 0.113 * 0.267 * * 0.160 * * 1
Illegal activities 0.154 * * 0.084 0.113 * 0.051 0.073 2 0.121 * 1
Dubious behavior 0.156 * * 0.057 0.127 * 0.063 0.168 * * 2 0.008 0.618 * * 1
Socially desirable responding 0.076 2 0.047 0.044 0.033 0.307 * * 0.013 0.059 0.113 * 1
Notes: * p , 0:05; * * p , 0:01 (two-tailed)
 Auditors’ moral
philosophies

493
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Figure 1.
Standardized estimates
model

negatively associated with sensitivity to clients’ engaging in illegal activities and

dubious behavior. Again, the negative association was expected; however, these
figures also failed to reach the level of significance (g1;2 ¼ 20:002; g2;2 ¼ 20:057,
p . 0:1). Contrary to our hypotheses, personal values did not influence the ethical
beliefs of auditors. In other words, motivational values alone are insufficient to reveal
the degree to which auditors tolerate unethical behavior; thus, H1 and H2 are not
supported.
Before abandoning personal values as predictors of ethical beliefs, we incorporated
moral philosophy as a mediating variable. As for the influence of moral philosophy on
ethical beliefs, our findings are as follows. Idealism is significantly positively
associated with the sensitivity of auditors to the dubious behavior of clients
(b2;3 ¼ 0:155, p , 0:01); however, the relationship between idealism and illegal
activities is not significant (b1;3 ¼ 0:083, p . 0:1). These results indicate that highly
idealistic auditors tend to be more critical of clients’ engaging in dubious behavior,
which supports H3. Relativism was found to be significantly negatively associated
with the sensitivity of auditors to the illegal actions of clients (b1;4 ¼ 20:124, p , 0:05;
b2;4 ¼ 20:018, p . 0:1). As such, auditors with strong relativist views are more likely
to acquiesce to the illegal activities of clients; thus, H4 is supported.
As for values and moral philosophy, conservation was significantly positively
associated with idealism and negatively associated with relativism (g5;1 ¼ 0:149,
p , 0:01; g6;1 ¼ 20:154, p , 0:01). Self-enhancement was significantly negatively
associated with idealism (g5;2 ¼ 20:131, p , 0:05), but positively associated with
relativism ( g6;2 ¼ 0:107, p , 0:1). In addition, the relationship between
self-enhancement and relativism was significantly positive (g6;2 ¼ 0:107, p , 0:05);
therefore, H5 and H6 are supported.
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MD
51,3

494

Table VII.

modeling analysis
Structural equation
Hypotheses Path Path coefficient Standard deviation t-value p-value

H1 Conservation ! Illegal activities (g1,1) 0.058 0.045 1.017 0.309

Conservation ! Dubious behavior (g2,1) 0.039 0.054 0.686 0.493
H2 Self-enhancement ! Illegal activities (g1,2) 2 0.002 0.047 2 0.034 0.973
Self-enhancement ! Dubious behavior (g2,2) 2 0.057 0.055 2 1.024 0.306
H3 Idealism ! Illegal activities (b1,3) 0.083 0.043 1.460 0.144
Idealism ! Dubious behavior (b2,3) 0.155 0.051 2.754 0.006 * * *
H4 Relativism ! Illegal activities (b1,4) 2 0.124 0.041 2 2.196 0.028 * *
Relativism ! Dubious behavior (b2,4) 2 0.018 0.048 2 0.319 0.750
H5 Conservation ! Idealism (g5,1) 0.149 0.058 2.745 0.006 * * *
Conservation ! Relativism (g6,1) 2 0.154 0.061 2 2.829 0.005 * * *
H6 Self-enhancement ! Idealism (g5,2) 2 0.131 0.060 2 2.411 0.016 * *
Self-enhancement !
Relativism (g6,2) 0.107 0.063 1.954 0.051 *
2 2
Notes: * Significant at the 0.10 level; * *Significant at the 0.05 level; * * * Significant at the 0.01 level; x ¼ 0; x =df ¼
; GFI ¼ 1:000; AGFI ¼
;
RMR ¼ 0:000; RMSEA ¼
; NFI ¼ 1:000; CFI ¼ 1:000; IFI ¼ 1:000 (Saturated model)
 Social desirability response Auditors’ moral
The study adopted MC-C to measure how auditors respond to pressure to act in a philosophies
socially desirable manner. According to Zerbe and Paulhus (1987), high scores on the
MC suggest a tendency to under-report undesirable behaviors. As a result, data from
such respondents cannot be considered valid and the quick fix is to discard them. To
determine whether ethical beliefs were influenced by social expectations, we performed
sensitivity analysis and eliminated the data from auditors with social desirability 495
responses above seven points. According to the correlation analysis in Table VI, social
desirability response is positively correlated to the sensitivity of auditors toward the
ethical behavior of clients (r ¼ 0:113). We investigated the relationship between social
desirability response and each of the ten anecdotes, the results of which demonstrate a
significant association between social desirability and ethical belief item B5b (data not
shown). Thus, we investigated whether the empirical results would change after
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dropping the problematic data. Except for slight adjustments in the level of
significance, the results from sensitivity analysis matched those prior to this
adjustment, as shown in Figure 2. Thus, it can be concluded that ethical beliefs in this
study were not susceptible to social desirability response. This conclusion does not
alter the hypotheses or framework of this paper.

Discussion and conclusion

This study employed SEM to examine the influence of personal value preferences on
the ethical beliefs of auditors. We also sought to discover whether moral philosophy
serves as a mediator in the relationship between value preferences and the ethical
beliefs of auditors. The findings of the study are as follows. Value preferences alone fail
as predictors of ethical beliefs. One possible explanation is that one’s ethical orientation
depends more on dispositional factors than personal values. Shafer et al. (2001) argued

Figure 2.
Standardized estimates
model after controls for
social desirability
response
 MD that dispositional and contextual factors may override the influence of personal values
51,3 on the ethical valuations of auditors.
Idealism was positively associated with the sensitivity of auditors toward the
dubious behavior of clients. Relativism is negatively associated with sensitivity to
clients’ engaging in illegal activities. These results are consistent with Forsyth et al.
(1988), who pointed out that idealistic individuals more strongly endorse the need to
496 make decisions based on moral principles, whereas those with relativist views tend to
espouse a moral philosophy based on a rejection of an absolute moral code. On the
other hand, auditors with relativist views endorse basing their actions on personal
whims or the expediency of the moment. Relativists refuse to accept any universal code
of moral absolutes, preferring to believe that morality is a subjective issue that varies
according to the viewpoint of the individual.
As predicted, idealist auditors were more likely to condemn the actions of clients
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that violated moral norms, while relativist auditors were more permissive. Consistent
with Shaub et al. (1993), our findings demonstrate that auditors with strong relativist
views tend to overlook ethical issues.
Conservative values were positively associated with idealism and negatively
associated with relativism. These results indicate that idealist auditors are more likely
to endorse conservative attitudes with regard to ethical issues, while relativist auditors
seek only to determine whether the action yielded a positive outcome in a given
situation. Moreover, auditors strongly motivated by values based on self-enhancement
were negatively associated with idealism in ethics and positively associated with
relativism. Therefore, it can be concluded that relativist auditors endorse attitudes of
self-serving with regard to ethical issues.
Although personal values were shown to have no effect on the ethical judgment of
auditors, they are not entirely ineffective in influencing ethical beliefs. One plausible
explanation is that scenarios designed to measure ethical beliefs do not solicit intuitive
judgments. Respondents were asked to answer questions after deliberating on
judgment dilemmas that had been manipulated for ethical intensity. The responses do
not demonstrate a direct influence of personal values on ethical beliefs. Instead,
personal values have an indirect influence on ethical beliefs via moral philosophy,
which influences ethical judgments. Collectively, our empirical results support those of
previous studies, which indicate that moral philosophy is related to ethical sensitivity
(Shaub et al., 1993). These results also identify the role of moral philosophy as a
mediator for the personal values and ethical beliefs of auditors, shedding light on how
personal values can influence ethical sensitivity.
This study could have taken a number of directions; however, we concentrated on
individual factors related to auditors, largely discounting the relationship between
contextual factors and ethical beliefs. Treviño and Weaver (2003) pointed out that the
ethical reasoning of auditors is influenced by multiple variables and their interactions.
Nevertheless, developing a comprehensive understanding of the ethical behavior of
auditors requires that factors associated with the ethical behavior of auditors be
considered. For instance, professional and organizational commitments of auditors
could override their ethical beliefs. Conversely, auditors who are more committed to the
profession are expected to be more responsive to ethical issues (Shaub et al. 1993).
Similarly, if the tone set by the managers of auditing firms promotes ethical behavior,
auditors could become more critical towards unethical conduct. Other individual
 factors may also have a significant impact on the moral philosophy and beliefs of Auditors’ moral
auditors, such as the size of the auditing firm as well as the experience or gender of the philosophies
auditor (e.g. Shaub and Lawrence, 1996; Pierce and Sweeney, 2010).

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