Provided by the author(s) and University College Dublin Library in accordance with publisher policies. Please
cite the published version when available.
Title
Author(s)
A study of whistleblowing among trainee auditors
Brennan, Niamh; Kelly, John
Publication
Date
2007-03
Publication
information
British Accounting Review, 39 (1): 61-87
Publisher
Elsevier
Link to
publisher's
version
http://dx.doi.org/10.1016/j.bar.2006.12.002
This item's
record/more
information
Rights
http://hdl.handle.net/10197/2901
All rights reserved.
Downloaded 2012-11-21T17:17:12Z
Some rights reserved. For more information, please see the item record link above.
A Study of Whistleblowing among Trainee Auditors
Niamh Brennana and John Kellyb
a
UCD School of Business, University College Dublin
b
PricewaterhouseCoopers
(Published in British Accounting Review, 39(1) (March 2007): 61-87)
Acknowledgements: The authors are grateful to two anonymous referees whose comments on this paper led
to its very significant improvement.
Address for correspondence: Prof. Niamh Brennan, Quinn School of Business, University College Dublin,
Belfield, Dublin 4. Tel. +353-1-716 4707; Fax +353-1-716 4765; e-mail Niamh.Brennan@ucd.ie
A Study of Whistleblowing among Trainee Auditors
Abstract
Over the last number of years whistleblowers have been gaining prominence. This paper
investigates some of the factors that influence the propensity or willingness to blow the
whistle among trainee auditors. Three categories of factors are examined: audit firm
organisational structures, personal characteristics of whistleblowers and situational
variables.
A survey of 240 final year students of the Institute of Chartered Accountants in Ireland
was undertaken. Trainee auditors (just about to sit their finals) were asked about their
confidence in internal and external reporting structures in their firms. Using four
scenarios, audit trainees were questioned on their willingness to challenge an audit
partner’s inappropriate response to concerns raised during the audit. Finally, audit
trainees were asked about the influence of legal protection on their likelihood of
whistleblowing.
Results indicate that where firms have adequate formal structures for reporting
wrongdoing, trainee auditors are more likely to report wrongdoing and have greater
confidence that this will not adversely affect their careers. Training increases this
confidence. Trainee auditors also express a willingness to challenge an audit partner’s
unsatisfactory response to wrongdoing. Significant differences were found in attitudes
depending on whether the reports of wrongdoing were internal or external. The
willingness to report wrongdoing externally reduces for older (aged over 25) trainees.
1. Introduction
Nowadays, firms are encouraged to develop whistleblowing policies and such policies are
seen as part of their internal control systems. For this reason, one would expect audit
practices (who are likely to recommend the introduction of such policies within client
firms) to have such policies themselves, and to ensure (for example by training
programmes) that such policies are adopted by audit staff. But are auditors willing to
confront wrongdoing they observe, by blowing the whistle? Vinten (1992b) has gone so
far as to describe whistleblowing auditors as a contradiction in terms.
There are excellent recent examples of whistleblowers being lauded before the public and
hailed by the media as heroes. Grant (2002) has gone further to describe them as “Saints
of Secular Culture”. Whistleblowers enjoy more public acceptance today than at any
other time, so much so that Time Magazine declared the highly celebrated whistleblowers
Cynthia Cooper (WorldCom), Coleen Rowley (FBI) and Sherron Watkins (Enron) as
Persons of the Year 2002, an accolade that would hardly have been possible a decade
ago.
Vinten (2003) reviews classic whistleblowing cases, including cases in the financial
services, accounting and auditing sectors, and he points to the paucity of research outside
the US on whistleblowing (Vinten 2004). He concludes his two papers by commenting on
the growing difference in culture around whistleblowing in the public sector compared
with the private sector where commercial pressures may discourage people from coming
forward.
Definitions of Whistleblowing
There is no agreed definition of whistleblowing. The term has worked its way into the
business vernacular and is widely used to describe the act whereby one exposes
wrongdoing (Jubb, 1999; Perry, 1998). Jubb (1999, 78) defines whistleblowing as:
“Whistleblowing is a deliberate non-obligatory act of disclosure, which gets on to
public record and is made by a person who has or had privileged access to data or
information of an organisation, about non-trivial illegality or other wrongdoing
1
whether actual, suspected or anticipated which implicates and is under the control of
that organisation, to an external entity having potential to rectify the wrongdoing.”
Interesting insights can be gained by comparing the definition of Jubb (1999) to the more
widely-accepted and most frequently used definition provided by Near and Miceli (1985,
4):
“…the disclosure by organizational members (former or current) of illegal, immoral
or illegitimate practices under the control of their employers, to persons or
organisations that may be able to effect action.”
Near and Miceli (1985) do not consider that the disclosure must be non-obligatory.
Secondly, while hinting at the need for gravity (i.e. illegal, immoral or illegitimate), Near
and Miceli (1985) do not directly emphasise the seriousness of the potential wrongdoing.
Finally, Near and Miceli (1985) do no preclude reporting internally, unlike Jubb (1999).
Following the definitions above, wrongdoing is a term used to refer to non-trivial
illegality, or to illegal, immoral or illegitimate practices. Auditors in Ireland have some
legal obligations to blow the whistle.1 Following from these legal requirements, and
taking into consideration accounting requirements and regulations of professional bodies,
wrongdoing in an auditing context could include fraud, financial statement fraud resulting
from non-application or mis-application of accounting standards, moneylaundering and
tax evasion. At the time of this research, legislation had been enacted in Ireland, but not
commenced by ministerial order, requiring directors to complete a statement attesting to
the company’s compliance with “relevant” legal obligations. Thus, in this climate,
breaches of corporate legal requirements would also be considered a wrongdoing.
Legal Protection for Whistleblowers
Common law protects the right of organisations to hold proprietary information and “has
never given workers a general right to disclose information about their employment”
(Lewis 2001, 171). This common law prohibition on the disclosure of information by
employees is grounded in two principles, specifically the duty of trust and the duty of
fidelity. In relation to the disclosure of confidential information this is normally the
subject of express terms in the employment contract. The only common law defence in
2
such an action is to prove that the confidential information was disclosed in the public
interest.
While other jurisdictions such as the US (Sarbanes-Oxley Act 2002) and the UK (Public
Interest Disclosure Act, 1999) have introduced legislation in recent years to protect
employees who blow the whistle, Ireland has yet to do so. A private member’s bill, the
Whistleblowers Protection Bill, was introduced but not passed in the Irish Parliament in
1999. Thus, Ireland still does not have any act or statute designed to protect
whistleblowers.
The principal remedy available to those who blow the whistle in Ireland is the Unfair
Dismissals Acts, 1977-2001. Under the terms of these Acts it is unlawful for an employer
to dismiss an individual who has taken, or is taking part in, civil or criminal action
against their employer. Relying on this remedy however is wholly unsatisfactory. Firstly,
in the subsequent period after making a report, the whistleblower is not protected from
victimisation or harassment. Secondly, whistleblowers must first lose their jobs in order
for the provisions of the Act to be invoked. This situation hardly encourages employees
to report instances of suspected or actual wrongdoing. Moreover, it is unlikely that
employees would report wrongdoing knowing that they would lose their jobs. However,
it is possible that employees in auditing firms will, post-Enron, be more willing to report
wrongdoing.
Motivations to Blow the Whistle
What motivates people to blow the whistle is not yet fully understood. Dozier and Miceli
(1985: 823) state that whistleblowing is “a ‘prosocial’ behaviour [positive social
behaviour intended to benefit other persons], involving both selfish (egoistic) and
unselfish (altruistic) motives”. Since society’s expectations are changing (Likierman,
1989) and such social parameters are constantly evolving, it must be recognised that
sometimes whistleblowing is neither politically nor socially acceptable, yet other times to
say nothing is to be complicit with the wrongdoers.
3
External auditors are placed in a unique position by virtue of the access to their clients’
company records, accounts and their relationship with the directors. However, the
relationship is fraught with potential ethical dilemmas. As Loeb and Cory (1989) point
out, auditors are subject to a variety of conflicting pressures both from their employer,
their profession and their clients. Yet as Vinten (1992b) notes, auditors find out early on
in their careers that they are watchdogs over the company and not bloodhounds, to use
the phrase first coined in the Kingston Cotton Mill case.2 Vinten (1992b, 3) ponders
whether external auditors more closely resemble French poodles rather than watchdogs:
“...ornamental and friendly, but unlikely to come up with any surprises.”
Contribution of the research
There are a limited number of empirical studies on whistleblowing in organisations.
There are few that empirically address whistleblowing in an accounting or auditing
context (Arnold and Ponemon (1991) is an exception). This research examines the topic
of whistleblowing among trainee auditors and the influences of a variety of variables on
the decision to blow the whistle. Although preliminary in nature, this research is one of
the first of its kind in accounting and auditing in examining some of the organisational,
personal and situational variables peculiar to the auditing profession and the inclination to
report wrongdoing.
2. Literature Review and Research Questions
The decision to blow the whistle is not an easy one and is a function of many different
organizational, personal and situational variables (Miceli and Near, 1988; Near and
Miceli, 1985; Tsui, 1996; King, 1999; Lovell, 2002). This research explores some of
these variables, with specific reference to trainee auditors, to establish whether or not
they are willing to blow the whistle on wrongdoing of which they become aware.
Discussion of the specific organisational context, the auditing profession, is first
considered. Whistleblowing as a process is then outlined. Nine aspects of the role of
auditors and audit firms are addressed by reference to three categories of influences on
4
whistleblowing:
(i)
Organisational
structure,
(ii)
personal
characteristics
of
whistleblowers and (iii) situational context.
Organisational Context: The Auditing Profession
Auditors are employed by the shareholders to report on the financial affairs of the
company and their remuneration is fixed by shareholders. However, in practice the
directors, whose stewardship of the company is central to the auditors’ report, wield
dominant influence when selecting auditors and fixing remuneration. Considering the
desire for re-appointment, auditors face situations that give rise to conflicts of interest
(Likierman, 1989). Likierman (1989, 620) goes on to cite Irvine (1988) who describes
this “catch 22” situation:
“Either he [the accountant] says nothing and compromises himself or he puts his
livelihood at stake. If he is a man with family commitments it is extraordinarily
difficult to put those on the line and jeopardise his whole future for the sake of a
principle.”
For auditors, these divided loyalties are affected by a number of factors, such as their
professional and ethical codes, the reporting requirements (voluntary or mandatory) and
channels (internal or external), as well as an assessment of the public interest. In many
instances auditors are removed from the consequences of their actions or indeed inaction.
Auditors must “face the consequences of decisions made by complete strangers while
making decisions that will affect the lives of people [they] will never know” (Williams,
2000, 261). This remoteness of the effect of decisions and their consequences is of
particular interest when studying whistleblowing.
Auditors rely on ethical guidelines of their professional bodies when confronted with an
ethical dilemma. In their study of the effect of ethical and professional codes on ethical
decision making, Pater and van Gils (2003) found that, contrary to popular belief, ethical
codes (i.e. those introduced by employer organisations) lead to more unethical behaviour.
They suggest that this is because ethical codes encourage a “by the book” attitude and
that employees are consequently not encouraged to make the right moral decision. In
contrast, they found that professional codes have a significant effect on ethical decision
making and suggest that this is because professional codes articulate general principles
5
rather than specify rules. This view is supported by Thorne and Hartwick (2001) who
maintain that auditors do not solve ethical dilemmas simply by adhering to the
professional rules or codes and apply professional judgement to resolve issues for which
rules have not yet been developed, and in some cases question the rules if they are not in
accordance with the public interest (Thorne and Hartwick, 2001 354).
As Vinten (1992b, 6) notes “A distinguishing mark of a profession is acceptance of its
responsibility to the public”. Most accountancy bodies recognise this duty to act at all
times in the best interests, not only of clients, but also of the wider public, for the benefit
of the orderly functioning of commerce (Mitschow and Langford, 2000; Doucet and
Eprile, 2000). Auditors therefore act at the behest of society which deems their skills to
be necessary. As Doucet and Eprile (2000, 223) state “When professionals assume the
role of auditors…they assume special duties which derive from their social contracts
based on the trust society has in their ability to fulfil these roles”. This implies that if for
any reason society no longer trusts auditors then the profession will cease to have a raison
d'être.
Some authors have sought to further broaden the profession’s interpretation of the public
interest to incorporate the concept of moral responsibility (Loeb and Cory, 1989). This
perspective recognises that in many areas of the professional accountant’s work, s/he has
the power to influence the outcome of situations that have an effect on society. It is
therefore important for professional accountants to note the close association between
acting ethically or morally and acting professionally. If one is to accept the social
contract opinion of Doucet and Eprile (2000), and the interpretations of ethics and the
profession above, then it becomes clear that the accounting/auditing profession must not
restrict itself to a narrow duty of acting in the public interest as to do so is to risk the trust
society places in the profession.
Furthermore, where a conflict exists, it appears that professionals are more loyal to their
profession than to their organisation (Pater and van Gils, 2003). But a cautionary note
must be sounded in that the professional associations do not generally play a dominant
6
role in the everyday activities of professionals. Therefore “unless compliance with
professional codes is enforced by the work organisation, professional codes are not likely
to bring about any positive effects” (Pater and van Gils, 2003, 766). If this opinion is
accepted, then the culture within auditing practices must be the enforcement of ethical
guidelines of the accounting profession.
Whistleblowing as a Process
Whistleblowing is generally viewed a process rather than an event (Near and Miceli,
1985; Loeb and Cory, 1989; Somers and Casal, 1994; Jubb, 1999; Grant, 2002). This
process consists of at least four elements (Near and Miceli 1985):
•
the whistleblower,
•
the whistle-blowing act,
•
the party to whom the complaint is made (i.e. the complaint receiver), and finally,
•
the organisation against which the complaint is made.
Dozier and Miceli (1995) suggest that the use of bystander intervention theory to
examine the decision process might be useful. They cite the work of Latané and Darley
(1970) who identified a five-step approach; firstly the observer must be aware of the
wrongdoing; secondly s/he must decide whether it warrants action; thirdly, s/he must
decide if s/he is responsible for taking such action; fourthly, an appropriate method of
action must be selected; and finally, the action must be undertaken. This process view
emphasises the stages in the ethical decision making process for the would-be
whistleblower and in so doing highlights the ethical dilemmas inherent in the decision to
blow the whistle.
Loeb and Cory (1989) extend this process view with a depiction of the decision process
for accountants in industry as adapted from that suggested by De George (1981) for
professional engineers (see Figure 1). This depiction is congruent with the process view
expressed by Near and Miceli (1985) and the bystander intervention theory as depicted
by Latané and Darley (1970). While this paper deals with auditors, not accountants in
7
industry, Figure 1 illustrates how a more generalised view of whistleblowing can be
adapted to specific contexts such as engineering, to accounting, to auditing.
Figure 1: Four-step whistleblowing process for accountants
Source: Loeb and Cory (1989, p. 909)
Organisational Structure: Internal vs. External Reporting Structures
There exists in the literature “substantial disagreement” (Near and Miceli 1985, 3)
concerning whether or not internal reporting of suspected or actual wrongdoing should be
considered whistleblowing. Those who argue that internal reporting should not constitute
whistleblowing do so from different perspectives. Jubb (1999) cites De George (1990)
who argues that internal disclosures neither breach the organisation’s confidences nor
violate its proprietary rights, therefore it is doubtful whether such disclosures constitute
whistleblowing. Courtemanche (1988, 39) similarly advocates that internal disclosures
should not be considered whistleblowing, stating instead “Whistleblowing is commonly
understood as being a gratuitous act unrelated to one’s official duties and
responsibilities”.
8
However, Near and Miceli (1985) and King (1999) argue that reporting wrongdoing
externally or internally is largely the same process. Although the effects of reporting
internally or externally may be different, they argue that conceptually both instances
represent a direct challenge to the offending organisation’s authority structure and both
should therefore be considered legitimate cases of whistleblowing. Moreover, Mitschow
and Langford (2000) contend that given the numerous restrictions upon external auditors
from “going public”, whistleblowing should not be restricted only to incidents where the
whistleblower reports the matter externally.
The decision concerning to whom to report wrongdoing involves considerable ambiguity
(Dworkin and Baucus 1998). For external auditors this decision is further complicated by
a number of issues. Firstly, external auditors are faced with the problem of dual loyalty
both to the client and to the wider public interest (Mitschow and Langford, 2000).
Secondly, external auditors faces many ethical, professional and legal restrictions on
“going public” with confidential information concerning their client’s wrongdoing.
Indeed it would appear that independent auditors face more severe penalties than other
professions for disclosing confidential information publicly (Mitschow and Langford,
2000). Finally, external auditors face a multitude of situations where statute compels
them to report certain matters externally.
Whistleblowing – Formal Structures
Given these complications peculiar to the auditing profession, the results of previous
research take on a greater significance. Such research has emphasised the need for clear
and proper channels for reporting actual or suspected wrongdoing internally within
organisations (Near and Miceli, 1994; Barnett, 1992; Barnett et al., 1993). Furthermore,
Near et al. (1993) found that firms with a climate where individuals knew to whom a
report of actual or suspected wrongdoing should be made, was positively related to the
incidence of whistleblowing. Sims and Keenan (1998) emphasise the important role of
clear organisational policies with respect to ethical issues within organisations. The first
research question addresses reporting from a process rather than relationship perspective.
9
RQ1a: To what extent do audit firms have adequate formal reporting structures in
place?
RQ1b: To what extent do audit firms have a whistleblowing policy in place?
Whistleblowing – Internal Reporting Structures
King (1999) argues that larger, hierarchal, authoritarian and more bureaucratic
organisations stifle upward communication and are therefore a more hostile environment
within which to report unethical behaviour (Barnett, 1992). This chain of command may
be a barrier to the upward communication of concerns and is a particularly important
feature of auditing practices. Many audit firms employ a hierarchal structure from
managing partner, partner, director, assistant director, manager, audit senior down to
audit junior. Otley and Pierce (1995) report higher levels of dysfunctional behaviour
amongst audit seniors where the leadership style is more structured (orientated towards
goal attainment) and demonstrates low consideration (mutual trust and respect) towards
subordinates. However, this effect may be decreasing as Pierce and Sweeney (2004) and
Sweeney and Pierce (2004) report changes in audit firm structures and increased
flattening of hierarchical structures. They found major changes such that there are more
varied internal reporting structures and performance evaluation. More varied reporting
lines were found (with juniors reporting directly to audit managers, audit partners, as well
as to audit seniors), such that direct reporting with immediate superiors is less frequent.
However, this reporting behaviour found in relation to performance evaluation systems in
audit firms may not apply in relation to reporting of ethical concerns. Given that many
auditing practices (especially the large firms) have formal, hierarchal structures, it is
important that there are robust internal reporting structures in which trainee auditors have
confidence if they are to be encouraged to report suspected or actual wrongdoing. The
second research question is therefore:
RQ2: Do trainee auditors have confidence in the internal reporting structures
within their firm?
10
Whistleblowing – External Reporting Structures
In light of the numerous legal obligations upon auditors to blow the whistle in certain
circumstances discussed earlier, it is relevant to investigate whether or not trainee
auditors are willing to report a matter of concern to an external authority. The third
research question deals with external reporting structures, and is similar to RQ2 on
internal reporting structures:
RQ3: Do trainee auditors have confidence in the external reporting structures
within their firm?
Organisational Structure: Influence of Firm Size on Whistleblowing
Audit firm size has been used as a proxy in prior research for audit quality (Francis and
Wilson, 1988; DeFond, 1992). For example, Craswell et al. (1995) and DeFond et al.
(2000) find large firms earn significantly larger fees, confirming DeAngelo’s (1981)
rationale for the view that large accounting firms conduct high-quality audits.
Thorley et al. (1998) found that small firm practitioners generally have the same level of
moral reasoning as big six practitioners. They provide an extensive discussion as to why
small firm practitioners might differ from those in big-six firms, primarily that larger
auditors are expected to be higher quality auditors. Following this argument, more
whistleblowing is expected in higher quality larger audit firms. However, there are
reasons for expecting the opposite result, such as the arguments of King (1999)
concerning the more hostile environments of larger, hierarchal, authoritarian and
bureaucratic organisations stifling upward communication. The influence of audit firm
size on whistleblowing is therefore tested.
RQ4a: Are adequate formal reporting structures / a whistleblowing policy related
to audit firm size?
RQ4b: Is trainee auditors’ confidence in the internal reporting structures within
their firm influenced by audit firm size?
RQ4c: Is trainee auditors’ confidence in the external reporting structures within
their firm influenced by audit firm size?
11
Organisational Structure: Influence of Training on Whistleblowing
An organisation’s management control system can play an important role in influencing
ethical behaviour amongst employees. Seven mechanisms have been identified in the
literature, one of which is employee training (Lindsay et al., 1996). Near and Miceli
(1994) state that training must be provided concerning employees’ duty to report
wrongdoing. Applebaum et al. (2006) suggest that better education and training is likely
to encourage whistleblowing. Thus, training is expected to affect auditors’ inclination to
blow the whistle.
RQ5a: Is trainee auditors’ confidence in the internal reporting structures within
their firm influenced by the training they receive?
RQ5b: Is trainee auditors’ confidence in the external reporting structures within
their firm influenced by the training they receive?
Personal Characteristics: Influence of Demographic Factors on Whistleblowing
Prior accounting research reports conflicting results on moral reasoning ability depending
on age and gender. Miceli and Near (1988) find that women are less likely to be
whistleblowers than men. Arnold and Ponemon (1991) found experience and education
not to be related to the moral reasoning ability of a group of internal auditors. Thorley et
al. (1998) found that gender and age were related to the moral reasoning ability of
accounting students and accountants, with female accountants and younger accountants
(contrary to expectations) having higher levels of moral reasoning ability. Gender and
grade (a proxy for experience) are included as control variables by Pierce and Sweeney
(2004) in their study of auditors’ dysfunctional behaviour around cost-quality conflicts.
To capture these influences, three control variables are included in this research: gender,
age and experience of respondents.
RQ6a: Is trainee auditors’ confidence in the internal reporting structures within
their firm influenced by gender, age or experience of respondent?
RQ6b: Is trainee auditors’ confidence in the external reporting structures within
their firm influenced by gender, age or experience of respondent?
12
Situational Context: Effect of Protecting Legislation on Whistleblowing
The possibility of retaliation has been accepted as a major determinate in the decision to
blow the whistle (Near and Miceli, 1985; Dozier and Miceli, 1985; Perry, 1998; Dworkin
and Baucus, 1998). Dworkin and Baucus (1998) found that in response to concerns raised
by whistleblowers managers tend to retaliate quickly against those who report the matter
internally, and more cautiously against those who report the matter externally.
Nevertheless retaliation is a factor in both internal and external reporting of wrongdoing.
Given that Ireland has no general legislative protection for whistleblowers, the seventh
research question is:
RQ7a: Are trainee auditors aware of the whistleblowing legislation applying to
auditors, and protecting employees?
RQ7b: Is trainee auditors’ confidence in the internal reporting structures within
their firm influenced by their awareness of legislation?
RQ7c: Is trainee auditors’ confidence in the external reporting structures within
their firm influenced by their awareness of legislation?
RQ7d: What is the impact of whistleblowing legislation on trainee auditors’
willingness to challenge an audit partner’s unsatisfactory response to
concerns they raise?
13
Situational Context: Seriousness of the Wrongdoing and Willingness to Challenge
Authority
Ethical behaviour is a vital component of society’s acceptance of any profession
(O’Leary and Radich, 2001) and higher standards of ethical behaviour are now demanded
by a more educated and discerning society (Perry, 1998; O’Clock and Okleshen 1993;
Pater and van Gils, 2003). It is therefore vital as the auditing profession evolves that the
new generation of professional accountants maintain high ethical standards, even if this
results in organisational disagreement. As Vinten (1992a, 45) points out “An element of
organizational disagreement is not only normal, but may also be regarded as healthy.” To
test whether or not trainee auditors are willing to stick by their initial convictions we ask
an eight question:
RQ8a: What is the impact of the seriousness of the wrongdoing on trainee
auditors’ further actions taken?
RQ8b: What is the impact of the seriousness of the wrongdoing on trainee
auditors’ willingness to challenge an audit partner’s unsatisfactory
response to concerns they raise?
RQ8c: What is the impact of the trainee auditors’ satisfaction with the audit
partners’ response and his/her willingness to challenge an audit partner’s
response to concerns they raise?
4. Research Methodology
This section of the paper describes the population and selection of the sample, nonresponse bias, preparation of the questionnaire, measurement of variables and statistical
analysis of the data.
Population and Selection of Sample
The population selected for this research is trainee accountants just about to sit their
finals. This population is chosen for a number of reasons. Trainee accountants have
practical experience of working in a professional environment and therefore may have
experienced ethical dilemmas such as those contained in the survey. Secondly, as trainees
are studying for their exams, respondents should be reasonably familiar with legislation
14
and practice and should therefore appreciate the complexities presented in the scenarios
section of the questionnaire. Finally, given that the population are at an early stage in
their careers, they may have greater dilemmas in deciding whether to report their
concerns at the possible risk of career progression.
The sample selected consists of 240 accountancy students of the Institute of Chartered
Accountants in Ireland (ICAI) due to sit their Final Admittance Examinations (FAE) in
September 2004.
The survey instrument was distributed to 240 final year ICAI students attending a FAE
Auditing lecture in July 2004.3 The respondents received the instrument prior to the
commencement of the lecture. They were given ten to fifteen minutes of lecture time to
complete the questionnaire. Of the 240 questionnaires distributed, 142 (59%) were
returned, with 98 questionnaires not returned by trainees. Of the returned questionnaires,
only 100 (42%) were fully completed. The 42 incomplete returned questionnaires were
excluded from the sample. Although the response rate is low4, it is nonetheless
representative of surveys in business ethics research. In their study of average response
rates, Randall and Gibson (1990) found that the mean response rate was 43%.
Representativeness of Sample and Non-response Bias
Two types of non-response bias may be present in this study: self-presentation/social
desirability bias and participation bias.
The term whistleblowing is used in the questionnaire. It is possible that the use of this
term may have influenced the responses. For example, some respondents may have
interpreted the term as socially desirable, leading to socially desirable response bias.
Socially desirable response bias is a tendency to provide answers that make the
respondent look good. However, maximising participant anonymity is known to reduce
socially desirable response bias (King and Bruner, 2000). In this research, the researcher
was not known previously to the respondents, nor did the researcher have access to the
names or any other details of the respondents. The administrator of the survey instrument
15
was thus socially distant from the respondents. The questionnaire was not administered in
the respondent’s workplace. Thus, participants would have known that there would be
little or no consequences for them arising from their responses. The survey instrument
was accompanied by a letter from the researcher guaranteeing anonymity.
Participation non-response bias may arise from two sources. Firstly, only audit trainees
attending the Institute of Chartered Accountants in Ireland courses were included in the
initial sample. Secondly, from amongst this group, some students did not complete the
questionnaire. Thus, our sample of respondents may not be representative of all audit
trainees in that they are at the end of their training and are close to qualification. It cannot
be assumed that the findings will be representative of the overall population, that is,
trainee accountants. One of the standard tests for non-response bias, early versus late
respondents, was not applicable in this research as all responses were made at the same
time.
Selecting a sample based on convenience is generally regarded to be a weakness as there
is no guarantee that the results will be representative of the general population.
Nevertheless it is an adequate methodology to employ once this weakness is recognised
(Randall and Gibson 1990). The use of student samples by researchers interested in
studying the ethical decision-making process is appropriate and furthermore does not
pose any threat to generalisability of the findings Studies focusing on decision-making
have found considerable similarities between the decisions and assumed behaviour of
student and non-student samples (Randall and Gibson 1990).
Few researchers in business ethics test for non-response bias. This is often because data
on the population from which the sample was drawn is not available. In this research, no
data is available on the non-respondents to determine selection bias. However, in prior
studies when information was available, researchers tested for differences in
demographic characteristics between respondents and non-respondents, without
correcting for differences found.
16
Thus, it cannot be assumed that the final sample of participants is the same as nonparticipants, although there is no evidence or reason to believe that they would be
different.
Survey Instrument and Questionnaire Design
The questionnaire (summarised in Appendix 1) collected information on three sets of
variables deemed to influence the decision to blow the whistle, namely (i) audit firm
organisational structures - whether the firm had adequate formal structures, training and a
whistleblowing policy and (ii) demographic information (Gender, Age, Experience and
Seniority) and firm size. The term whistleblowing is used in the questionnaire but is not
defined. The questionnaire also uses the term wrongdoing, but does not make clear the
nature of the wrongdoing involved.
Scenarios have been used in prior research on ethical behaviour in business (Pater and
van Gils 2003) and specifically relating to auditors and accountants (e.g. Tsui, 1996;
O’Leary and Radich, 2001). A similar style of scenario to those used by Tsui (1996) and
O’Leary and Radich (2001) was developed. Four scenarios, each presenting a different
suspected wrongdoing, ranging from minor, to material, to non-financial, are included:
Morris Ltd. (uncovering a minor fraud), Collins Ltd. (disagreement over the proper
accounting treatment), First Province Bank (obligation to investigate suspected fraud or
error imposed by Statement of Auditing Standard (SAS) 110 Fraud and Error) and
Public Hospital Ltd. (serious public interest misdemeanour).
Great care was taken to develop challenging yet realistic scenarios. Real-life cases as
reported in the national newspapers formed the basis for the first draft scenarios. The four
scenarios were piloted with the assistance of (i) an audit manager of a big-four practice
and (ii) a university auditing lecturer independent of the research. Scenarios were redrafted where they were considered to be unrealistic. As a consequence of this process,
the minor fraud case (Morris Ltd) was provided from a real-life case of the audit
manager. However, it is acknowledged that using brief hypothetical scenarios cannot
adequately capture the richness of the real life audit environment, the formal and informal
17
structures and networks within auditing firms, personal ambitions, integrity and much
else besides.
Respondents were asked to answer four questions in each scenario. For each scenario,
respondents were asked to assess the seriousness of the client wrongdoing, and to assess
the audit partner’s response to the wrongdoing, using a five-point scale. The third
question asked respondents to select from a choice of five to six alternatives a further
course of action. Finally, respondents were asked whether the introduction of specific
legislation to protect whistleblowers would alter their chosen course of action. In each
scenario the emphasis was not on the decision to report the issue, but rather on what
further action should be taken in light of the audit partner’s response to the initial
concerns raised by the audit senior. Therefore, included in each scenario is the antecedent
action taken by the audit senior to report his concerns to the audit partner. A copy of the
instrument is available on request from the authors and is summarised in Appendix 1.
These scenarios focus on a particular form of wrongdoing, i.e., when an audit partner is
perceived by the trainee to behave unethically and the trainee is faced with the dilemma
of whether or not to blow the whistle. This is a very specific form of whistleblowing that
is likely to carry negative consequences for a trainee to a much greater extent than many
other forms of whistleblowing. Auditors have extensive whistleblowing responsibilities
under legislation as outlined in end note 1. A limitation of the research is that these
findings cannot be generalised across all forms of whistleblowing.
The level of confidence of respondents in the internal and external reporting structures
was measured by reference to how respondents felt reporting concerns (internally or
externally) would affect their career prospects. This is an important measure because the
sample consists entirely of trainee auditors who are starting out on their careers.
Level of Confidence in this research is measured narrowly by reference to effect on an
auditor’s career prospects. Other measures of confidence in the reporting system could
include a belief that reporting wrongdoing would result in positive outcomes, ensuring an
18
appropriate audit report and positive outcomes for the individual who is seen to show a
high degree of professionalism. These alternative perspectives on confidence levels were
not included in the questionnaire.
Finally, auditors’ awareness of legislative environment was ascertained.
Measurement of variables
Data on demographic factors including Gender, Age, Experience and Seniority were
collected. Demographic factors were recorded as categorical variables. Firm size was
measured by reference to numbers of employees, categorised into three size groupings.
Independent Variables – Descriptive statistics
The characteristics of the sample are detailed in Table 1. The ratio of females to males
was approximately 3:2. Mean age was 24 years 5 months (standard deviation 11 months)
and 52% of respondents were under 25 years of age. Furthermore, 44% of respondents
had less than two years experience while the remainder had between two and four years
experience. Only one person had greater than four years experience. As regards seniority,
80% of respondents described their jobs as audit senior. Thus, broadly-speaking, in
relation to Experience and Seniority, respondents fell into two groups: Less than/more
than two year’s experience; and junior/senior auditors. Although all respondents were
sitting their final examinations, those entering the profession with a masters degree would
have less on-the-ground training completed by the time they sit their finals. There are
14% of respondents over the age of 27 years. This is possibly explained by an increasing
number of trainees from industry, together with a number of repeat students.
The majority of respondents work for large firms, that is, those with greater than 500
employees. These firms comprise what is collectively referred to as the “Big Four”
auditing practices, namely, PricewaterhouseCoopers, KPMG, Deloitte and Ernst &
Young. Interestingly the next most common employer size is small practices, that is,
firms with less than 100 employees.
19
Table 1: Demographic profile of
respondents; Firm size
Gender
Male
Female
Total
Age (Years)
21-22
23-24
25-26
27-28
29+
Total
Years’ Experience
Less than two years
Between two and four years
Greater than four years
No answer given
Total
Seniority
Junior
Senior
Manager or above
Total
Firm Size (no. employees)
Greater than 500
Between 200 and 500
Between 100 and 200
Less than 100
Total
No.
(%)
41
59
100
(41%)
(59%)
(100%)
4
48
34
7
7
100
(4%)
(48%)
(34%)
(7%)
(7%)
(100%)
43
54
1
2
100
(44%)
(55%)
(1%)
(100%)
20
80
0
100
(20%)
(80%)
(0%)
(100%)
56
7
4
33
100
(56%)
(7%)
(4%)
(33%)
(100%)
Statistical Analysis
The analysis of the results consisted primarily of bivariate cross tabulation of variables.
The strength and direction of the relationship between variables were tested using
Spearman’s rho correlation. This statistical technique is suitable for categorical or
interval variables. It does not require the assumption that the variables behave normally.
5. Results
Whistleblowing – Formal Structures for Reporting Wrongdoing
Accounting firms have formal management hierarchies, or as one respondent stated “a
hierarchy of authority” which is part of the formal reporting structures within auditing
practices. As shown by Table 2, the majority (66%) of respondents stated that their firm
20
had adequate formal reporting structures in place for the reporting of suspected or actual
wrongdoing. However, only 52% of respondents stated that their firm had a
whistleblowing policy. Interestingly, a significant proportion of respondents did not know
whether their firm had adequate formal structures in place (20%), nor could they say
whether or not their firm had a whistleblowing policy (35%).
Somewhat undermining the responses, when asked to briefly describe such formal
structures, the majority of respondents declined. Where responses were provided, they
were somewhat off the point. Many of those that responded indicated that audits were
subject to peer review. In addition, many stated that there was a compliance department
with responsibility to ensure that audits were performed to a certain standard. In some
cases, respondents indicated that there was a specific partner with responsibility for
issues relating to fraud and money laundering offences. This raises questions as to
whether the formal structures reported to be in place are adequate to encourage trainee
auditors to report instances of actual or suspected wrongdoing.
Whistleblowing – Internal Reporting Structures
In order to test for confidence in the internal reporting structures, respondents were asked
whether their career prospects might suffer by reporting a matter of concern internally.
As shown in Table 2, the majority (55%) of respondents felt that their career prospects
would not suffer in such circumstances. However, a high proportion (26%) felt their
career prospects would suffer. It is possible that this finding understates the fear of
reporting wrongdoing as in practice respondents are likely to feel pressures that cannot be
captured in a questionnaire conducted in isolation from the workplace.
Whistleblowing – External Reporting Structures
In contrast to reporting a matter internally, it is evident from Table 2 that the majority
(56%) of respondents felt that by reporting a matter externally their career prospects
would suffer. This compares with a corresponding figure for reporting internally of only
26%.
21
Table 2: Influence of firm size on (i) Adequate Formal Structures (RQ1a, RQ4a), (ii) Whistleblowing
policy (RQ1b, RQ4a), (iii) Confidence in internal reporting structures (RQ2, RQ4b), (iv) Confidence in
external reporting structures (RQ3, RQ4c)
Adequate Formal Structures
(Questionnaire Part 1 – Q6)
Yes
No
Don’t know
Firm Size (Questionnaire Part 1 – Q5)
Greater than 500
100-500
Less than 100
Total
No.
No.
% No.
%
% No.
46
(82%)
7
(64%)
13
1
(2%)
1
(9%)
12
9
(16%)
3
(27%)
8
56 (100%)
11 (100%)
33
Correlation coefficient, 0.356** (P=0.0001); ** Significant at 0.01level (2-tailed)
%
(40%)
(36%)
(24%)
(100%)
66
14
20
100
(66%)
(14%)
(20%)
(100%)
No.
%
No.
%
36
(64%)
6
(55%)
10
1
(2%)
1
(9%)
11
19
(34%)
4
(36%)
12
56 (100%)
11 (100%)
33
Correlation coefficient, 0.204* (P=0.042); * Significant at the 0.05 level (2-tailed)
(30%)
(34%)
(36%)
(100%)
52
13
35
100
(52%)
(13%)
(35%)
(100%)
Whistleblowing Policy
(Questionnaire Part 1 – Q8)
Yes
No
Don’t know
No.
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
No.
%
No.
%
No.
%
No.
%
35
10
11
56
(62%)
(18%)
(20%)
(100%)
6
5
0
11
(55%)
(45%)
(0%)
(100%)
14
4
15
33
(42%)
(12%)
(46%)
(100%)
55
19
26
100
(55%)
(19%)
(26%)
(100%)
No.
%
No.
%
No.
%
No.
%
12
14
30
56
(22%)
(25%)
(53%)
(100%)
4
1
6
11
(36%)
(9%)
(55%)
(100%)
10
3
20
33
(30%)
(9%)
(61%)
(100%)
26
18
56
100
(26%)
(18%)
(56%)
(100%)
%
No.
%
Correlation coefficient, 0.181 (P=0.071)
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Correlation coefficient, -0.046 (P=0.647)
Influence of Firm Size on Whistleblowing
Large firms are significantly more likely to have formal reporting structures to support
whistleblowing, and to have whistleblowing policies. This result is not surprising, as such
firms are influenced by global firm requirements. Barrett et al. (2005) describe the
influence of global systems in large international audit practices, and their appropriation
into local practices.
22
There were significant differences (only at the 7% level) by reference to firm size, with
audit trainees’ confidence in internal reporting structures being greater in larger firms.
These findings would indicate that trainee auditors in large firms have greater confidence
in the internal reporting structures within their firm than their counterparts in small and
medium size firms. The reluctance to report externally was evident across all firm sizes,
with no significant differences between the three categories of firm.
Influence of Training on Whistleblowing
The influence of training on the confidence of respondents in reporting wrongdoing was
examined. As can be seen in Table 3, there is a significant positive relationship between
training and the confidence in internal reporting structures. However, Table 3 shows that
training does not have a significant effect on respondents’ confidence around external
reporting.
Table 3: Influence of training on confidence in internal reporting structures (RQ5a) and in
external reporting structures (RQ5b)
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Training in Statutory Duties to Whistleblow
(Questionnaire Part 1 – Q7)
Yes
No
Total
No.
No.
No.
%
%
36
(69%)
19
(40%)
55
6
(12%)
13
(27%)
19
10
(19%)
16
(33%)
46
52 (100%)
48 (100%)
100
Correlation coefficient, 0.274** (P=.006); **Significant at the .01 level (2-tailed).
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
%
(55%)
(19%)
(46%)
(100%)
No.
%
No.
%
No.
%
17
10
25
52
(33%)
(19%)
(48%)
(100%)
9
8
31
48
(19%)
(17%)
(64%)
(100%)
26
18
56
100
(26%)
(18%)
(56%)
(100%)
Correlation coefficient, 0.129 (P=0.202)
Influence of Demographic Factors on Whistleblowing
Audit trainee confidence in internal and external reporting structures is analysed in Table
4 by reference to demographic factors, including Gender, Age, Experience and Seniority.
23
In relation to reporting internally, there were no significant differences in responses other
than for Age. Older (over 25) respondents were more concerned about the effect of
reporting concerns on career prospects. While this may point to a greater sensitivity to
job promotion as trainees become more senior, it is accepted that the sample is fairly
homogenous with a narrow spread of ages. It is unlikely to be due to a selection process
(say more ethically-sensitive auditors changing jobs) as trainees pre-qualification are
unlikely to change jobs at that critical juncture. These findings are consistent with those
of Ponemon (1990) who found that moral reasoning scores tended to be lower for
individuals in higher levels in accounting firms than for individuals with three to four
years of experience.
Looking at the influence of demographic factors on the decision to report externally,
Table 4 shows that the most influential factor is Seniority. More senior staff have
significantly more confidence that their career would not suffer by reporting a matter
externally. This finding seems to contradict the finding that older respondents appeared
more concerned about the effect of reporting concerns internally on career prospects.
These conflicting findings may be explained by older respondents being further on in
their careers, more sensitive to internal “politics” and less willing to put hard-earned
promotion on the line by disagreeing with a more senior member of staff. It is also
possible that reporting a concern internally is more likely to happen in practice than
having to resort to external reporting. Thus, sensitivities in relation to internal reporting
might be different than those concerning external reporting. The variations in factors
influencing internal compared with external reporting is flagged as an area for further
research in the conclusions to the paper.
24
Table 4: Influence of demographic factors on (i) Confidence in internal reporting structures (RQ6a) (ii) Confidence in external
reporting structures (RQ6b)
Internal Reporting Structures
Career prospects would not suffer
Indifferent
Career prospects would suffer
Male
No.
%
26
(64%)
5
(12%)
10
(24%)
41
(100%)
Gender (Questionnaire Part 1 – Q1)
Female
No.
%
29
(49%)
14
(24%)
16
(27%)
59
(100%)
Total
No.
55
19
26
100
%
(55%)
(19%)
(26%)
(100%)
No.
26
18
56
100
%
(26%)
(18%)
(56%)
(100%)
Correlation coefficient, 0.165 (P=0.101)
External Reporting Structures
Career prospects would not suffer
Indifferent
Career prospects would suffer
No.
13
4
24
41
%
(32%)
(10%)
(58%)
(100%)
No.
13
14
32
59
%
(22%)
(24%)
(54%)
(100%)
Correlation coefficient, -0.013 (P=0.897)
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Less than 25
No.
%
Age (Questionnaire Part 1 – Q2)
25 and older
No.
%
Total
35
(67%)
20
(42%)
7
(14%)
12
(25%)
10
(19%)
16
(33%)
52
(100%)
48
(100%)
Correlation coefficient, 0.243* (P=0.015); * Significant at the .05 level (2-tailed).
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
No.
%
55
19
26
100
(55%)
(19%)
(26%)
(100%)
No.
%
No.
%
No.
%
14
11
27
52
(27%)
(21%)
(52%)
(100%)
12
7
29
48
(25%)
(15%)
(60%)
(100%)
26
18
56
100
(26%)
(18%)
(56%)
(100%)
Correlation coefficient, 0.1 (P=0.323)
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
< 2 years
No.
%
Experience (Questionnaire Part 1 – Q3)
> 2 years
Missing values
No.
%
No.
%
26
7
10
43
(61%)
(16%)
(23%)
(100%)
28
12
15
55
(51%)
(22%)
(27%)
(100%)
2
No.
%
No.
%
No.
9
9
25
43
(21%)
(21%)
(58%)
(100%)
17
8
30
55
(31%)
(15%)
(54%)
(100%)
Total
No.
%
54
19
25
100
(55%)
(19%)
(26%)
(100%)
No.
%
26
17
55
100
(27%)
(17%)
(56%)
(100%)
Correlation coefficient, 0.072 (P=0.481)
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
2
%
Correlation coefficient, -0.065 (P=0.527)
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Junior
No.
%
Seniority (Questionnaire Part 1 – Q4)
Senior
No.
%
Total
No.
%
9
1
10
20
(45%)
(5%)
(50%)
(100%)
46
18
16
80
(58%)
(22%)
(20%)
(100%)
55
19
26
100
(55%)
(19%)
(26%)
(100%)
No.
%
No.
%
No.
%
(30%)
(20%)
(50%)
(100%)
26
18
56
100
(26%)
(18%)
(56%)
(100%)
Correlation coefficient, -0.165 (P=0.102)
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
2
(10%)
24
2
(10%)
16
16
(80%)
40
20
(100%)
80
Correlation coefficient, -0.318** (P=0.01); ** Significant at the .01 level (2-tailed)
25
Effect of Protecting Legislation on Whistleblowing
Respondents were asked about their level of awareness of the statutory duties on auditors
to report matters of concern under legislation. As shown in Table 5, the majority of
respondents (76%) stated that they were aware of their statutory duties to whistleblow.
When asked to briefly describe such duties most respondents declined to do so. This
inability or unwillingness to elaborate on their answers raises questions on the quality of
their knowledge and their training in this area.
Respondents were also asked to indicate whether they were aware of any legislation to
protect them in the event they were forced to fulfill their whistleblowing duties.
Respondents were divided fairly equally when asked whether there was legislation to
protect whistleblowers. As shown in Table 5, the majority (52%) of respondents indicated
that they were not aware of any such protection, with 48% aware of legislative protection.
Only a minority (38%) indicated that they were confident such legislation would protect
them. Furthermore, a significant proportion (33%) indicated that they did not believe
such protection was adequate.
Again, when asked to briefly describe such protection, the majority of respondents
indicated that protection was provided in the Companies Acts. This is not the case. The
tendency of respondents not to elaborate on their responses with comments raises
questions about the respondents’ actual knowledge of legislation, compared with their
claimed knowledge levels.
Table 5 shows that 50% of respondents indicated that they would not pursue an instance
of serious wrongdoing, in the absence of legislative protection. In fact, just over a quarter
of respondents (27%) indicated that if they observed serious wrongdoing they would
pursue the matter until it was fully corrected, regardless of whether legislative protection
existed. While acknowledging respondents’ lack of awareness of protecting legislation,
nonetheless, this finding suggests that respondents do not have much confidence in
existing legislative protection.
26
Table 5: Awareness of legislative environment (RQ7a)
Aware of statutory duties to whistle-blow (Questionnaire, Part 1 – Q9)
No.
%
Yes
75
(76%)
No
24
(24%)
Total
99 (100%)
Missing
1
Total
100
Aware of Legislation to Protect Whistleblowing Auditors
(Questionnaire, Part 1 – Q10)
No.
%
Yes
48
(48%)
No
51
(52%)
Total
99 (100%)
Missing
1
Total
100
If I were forced to "blow the whistle", I am confident that current
employment legislation would protect me (Questionnaire, Part 3 – Q2)
No.
%
Agree or Strongly Agree
38
(38%)
Disagree or Strongly Disagree
33
(33%)
Indifferent
29
(29%)
Total
100 (100%)
If I discovered serious wrongdoing I would pursue the matter until it
was fully corrected regardless of whether specific legislative protection
existed or not (Questionnaire, Part 3 – Q5)
No.
%
Agree or Strongly Agree
27
(27%)
Disagree or Strongly Disagree
50
(50%)
Indifferent
23
(23%)
Total
100 (100%)
Table 6 correlates career concerns with awareness of protective legislation. The results
tentatively indicate that awareness of legislative protection is unrelated to perceptions of
effects on career prospects of making a report either internally or externally.
27
Table 6: Effect on career of reporting given awareness of legislative protection (RQ7a, RQ7b,
RQ7c)
Internal Reporting Structures
(Questionnaire Part 3 – Q4)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Aware of protecting legislation (Questionnaire Part 1 – Q10)
Yes
No
Total
No.
No.
No.
%
%
%
29
14
6
49
(59%)
(29%)
(12%)
(100%)
27
11
13
51
(53%)
(22%)
(25%)
(100%)
56
25
19
100
(56%)
(25%)
(19%)
(100%)
Correlation coefficient, 0.012 (P=0.909)
External Reporting Structures
(Questionnaire Part 3 – Q3)
Career prospects would not suffer
Indifferent
Career prospects would suffer
Yes
No.
15
23
10
48
%
(31%)
(48%)
(21%)
(100%)
No
No.
11
32
9
52
%
(21%)
(62%)
(17%)
(100%)
Total
No.
26
55
19
100
%
(26%)
(55%)
(19%)
(100%)
Correlation Coefficient, -0.150 (P=0.139)
The remaining tables (Tables 7 to 10) report the results for issues raised in the four
scenarios in Part 2 of the questionnaire.
In relation to their chosen course of action in each scenario, respondents were asked
whether protective legislation would change their chosen course of action. Respondents
were also asked about the effect on their careers if they report wrongdoing. These two
sets of responses are correlated to see whether respondents aware of legal protection are
more confident of reporting wrongdoing. The results in Table 7 show no significant
differences between the two groups – those aware and not aware of protecting legislation.
28
Table 7: Impact of legislation protecting whistleblowers on willingness to challenge audit partner’s response (RQ7d)
First Province
Collins Ltd
Bank Public Hospital
(Obligation to
Ltd
(Disagreement
investigate (Serious public
Morris Ltd over accounting
(Minor fraud)
treatment)
suspected fraud)
interest issue)
Affect of legislation protecting whistleblowers on original chosen course of action (Questionnaire, Part 2 – Q4)
No.
No.
No.
No.
(%)
(%)
(%)
(%)
Alter chosen action
8
(8%)
16 (16%)
15
(15%)
13
(13%)
No effect
91 (91%)
84 (84%)
85
(85%)
87
(87%)
Total
100 (100%)
100 (100%)
100
100 (100%)
(100%)
Seriousness of the Wrongdoing and Willingness of Trainee Auditors to Challenge Audit Partner
In each of the four scenarios, respondents were asked the following three questions:
firstly to rate the seriousness of the situation described in the scenario; secondly, to rate
their satisfaction with the audit partner’s response to the concerns raised; and finally to
select a further course of action.
The results in Table 8 indicate that in every case, with the exception of Public Hospital
Ltd, the overwhelming majority of respondents (92%, 80% and 91% respectively) viewed
the situation as described in the scenario as either serious or very serious. Surprisingly,
respondents did not distinguish between the minor theft of €12,000 in Scenario 1 and the
application of incorrect interest rates by a financial institution in Scenario 3 which could
result in mortgage holders being out of pocket. Fewer respondents viewed the material
financial statement fraud in capitalising research expenditure in Scenario 2 as serious.
Thus, Scenarios 1, 2 and 3 were less discriminatory than was expected. This inability to
distinguish material and immaterial events may partly be due to the youth and
inexperience of the trainees. An audit partner is likely to take the fraud of €12,000 in
Scenario 1 less seriously than a trainee, for whom such an amount of money is likely to
appear large.
The majority (63%) of respondents viewed the situation in Public Hospital Ltd. as
serious. This reduction in the perceived seriousness (compared with the other three cases)
may be due to a variety of reasons. Firstly, this was the only non-financial scenario.
29
Secondly, the company being audited was not directly at fault. Thirdly, no documentary
evidence of wrongdoing exists. Finally, such a scenario is not covered explicitly by
accounting/auditing regulations nor is it covered directly by company law (but it may be
an offence under other legislation such as environmental legislation).
The overwhelming majority of respondents were dissatisfied with the audit partners’
response, viz. a failure to take any further action, especially in the cases of Morris Ltd,
Collins Ltd. and First Province Bank. There was greater ambivalence around Public
Hospital Ltd.
In the case of Collins Ltd. (which dealt with a disagreement of accounting treatment),
Table 8 shows that a large number of respondents (29 – 29%) were willing to accept the
Partner’s advice and take no further action. There are two possible explanations for this
finding. Firstly, given that the treatment of R&D allows scope for discretion, respondents
may not be quite as willing to challenge an audit partner’s judgement given such scope
for discretion and given the audit partner’s greater experience and expertise. Nonetheless,
the framing of the Collins Ltd. scenario clearly indicates that the accounting treatment
contravened accounting standards. A second possible explanation is that the scenario
contains a warning to the audit senior to “let sleeping dogs lie” suggesting that by
reporting the matter the audit senior might adversely affect their career prospects. This
implied threat was commented on by a number of respondents. One in particular stated:
“it’s not worth the hassle with one year left”. This points to the possibility that subtle
threats could alter the chosen course of action. Such subtle threats merit further research.
Turning our attention to the case of First Province Bank, we observe that this issue was
deemed to be serious or very serious by 91% of respondents in Table 8. This level of
seriousness is comparable with that expressed by respondents in the Morris Ltd. case.
Two interesting observations can be made. Firstly, almost two-thirds (64%) of
respondents indicated that they would report the matter (i.e. the unwillingness of the audit
partner to investigate the circumstances at the Bank) internally. Secondly, a substantial
number (13%) of respondents indicated that they would report the matter to the external
authorities immediately, without first reporting the matter internally. This is an
30
interesting finding that may have implications for the reporting structures in auditing
practices.
Finally, examining the only non-financial scenario Public Hospital Ltd., complements our
findings discussed above. Firstly, this scenario was perceived by respondents to be the
least serious of the four with only 63% of respondents indicating that the issue was
serious or very serious. The remainder (37%) of the sample indicated that they were
indifferent or that the issue was minor. What is interesting about this scenario is that the
sample was almost equally divided between three broad alternative courses of action,
namely to report the matter internally (33%), report the matter externally (32%) that is, to
the authorities or the media, and to do nothing (30%). Furthermore, of those who
indicated they would report the matter, the sample is split in half between reporting
internally and reporting externally. This finding indicates a hesitation on the part of
trainee auditors to report a matter of concern regarding non-financial wrongdoing
internally. This scenario highlights two important issues. Firstly, wrongdoing of a nonfinancial nature is not deemed by trainee auditors to be as serious as wrongdoing of a
financial nature. Secondly, where wrongdoing of a non-financial nature is observed,
trainee auditors are reluctant to report the matter internally.
31
Table 8: Perceived seriousness of issue/Perceived satisfaction with audit partner’s response/Further action to be taken
Perceived seriousness of the issue
(Questionnaire Part 2 – Q1)
Serious or very serious
Indifferent
Minor or trivial
Satisfaction with audit partner’s response
(Questionnaire Part 2 – Q2)
Dissatisfied or very dissatisfied
Indifferent
Satisfied or very satisfied
Further action to be taken
(Questionnaire Part 2 – Q3)
Report the matter internally
Report the matter to external authority
Report the matter to the media
Total
Do nothing
Remind audit partner
Other
Morris Ltd
(Minor fraud)
No.
%
Collins Ltd
(Disagreement
over accounting
treatment)
No.
%
First Province
Bank
(Obligation to
investigate
suspected fraud)
No.
%
Public Hospital
Ltd
(Serious public
interest issue)
No.
%
92
2
6
100
(92%)
(2%)
(6%)
(100%)
80
13
7
100
(80%)
(13%)
(7%)
(100%)
91
6
3
100
(91%)
(6%)
(3%)
(100%)
63
22
21
100
(63%)
(22%)
(15%)
(100%)
No.
%
No.
%
No.
%
No.
%
86
7
7
100
(86%)
(7%)
(7%)
(100%)
80
5
15
100
(80%)
(5%)
(15%)
(100%)
85
6
9
100
(85%)
(6%)
(9%)
(100%)
57
21
22
100
(57%)
(21%)
(22%)
(100%)
No.
%
No.
%
No.
%
No.
%
45
3
4
52
4
42
2
(45%)
(3%)
(4%)
(52%)
(4%)
(42%)
(2%)
60
9
0
69
29
N/a
2
(60%)
(9%)
(0%)
(69%)
(29%)
N/a
(2%)
64
13
3
80
15
N/a
5
(64%)
(13%)
(3%)
(80%)
(15%)
N/a
(5%)
33
24
8
65
30
N/a
5
(33%)
(24%)
(8%)
(65%)
(30%)
N/a
(5%)
Correlations between the perceived seriousness of the issue and the willingness to
challenge the audit partner’s inaction are reported in Table 9. With the exception of
Morris Ltd, the results show that the perceived seriousness of the case is significantly
related to willingness to challenge the audit partner’s response. Morris Ltd. deals with a
minor fraud, perpetrated within the client’s business and reported to the audit partner.
This scenario differs from the other three scenarios in that respondents had the option to
remind the audit partner, and take no further action. This course of action was selected by
42% of respondents. This course of action is distinct from using formal reporting
structures to report the Partner’s inertia and should be viewed as an unsatisfactory
response given the violation of statutory duty5 on auditors to report fraud. Nevertheless,
given that the majority (52%) of respondents would report the matter formally straight
32
away, one can conclude that in this scenario trainee auditors are willing to challenge the
audit partner.
Correlations were also run between the perceived satisfaction with the audit partners’
response and the willingness to challenge the audit partner’s inaction. Table 9 shows that
responses were significantly positively correlated in all four scenarios, indicating that the
greater the concern with the audit partner’s responses the more likely audit trainees are to
challenge that response.
Table 9: Correlations between perceived seriousness of cases/ Perceived satisfaction with audit partner’s response
and Willingness to challenge audit partner’s response (RQ8a, RQ8b, RQ8c)
Morris Ltd
(Minor fraud)
Collins Ltd
(Disagreement
over accounting
treatment)
Perceived seriousness of cases &
Willingness to challenge audit
partner’s response
Correlation coefficient
.064
.360**
Probability
(.528)
(.000)
Perceived satisfaction with audit
partner’s response and Willingness to
challenge audit partner’s response
Correlation coefficient
.283**
.411**
Probability
(.004)
(.000)
* Significant at the .05 level (2-tailed); ** Significant at the .01 level (2-tailed)
First Province
Bank
(Obligation to
investigate
suspected fraud)
Public Hospital
Ltd
(Serious public
interest issue)
.327**
(.001)
.279**
(.005)
.305**
(.002)
.211*
(.035)
Key:
(i) Perceived seriousness of each case was coded 1-5 in the questionnaire from least serious to very serious.
(ii) Willingness to challenge audit partner’s response was coded as a dummy variable – 0 for the response no action
taken, and 1 for every other response to the question “What further action would you take?”
(iii) Perceived satisfaction with audit partner’s response was coded 1-5 in the questionnaire from dissatisfied to very
satisfied.
(Note: The correlations above indicate the relationship between; (1) perceived seriousness of the issue and further action
selected and, (2) satisfaction with audit partner’s response and further action selected.)
33
6. Summary and Conclusions
This research examined nine aspects in relation to the role of auditors in reporting
wrongdoing against three categories of factors: audit firm organisational structures,
personal characteristics of whistleblowers and situational variables.
Organisational Structure
A disparity of practice between large and small audit firms was found. A majority of
large audit firms had formal reporting policies in place, but only a minority of small audit
firms had such policies. Supporting prior research findings, we found that trainee auditors
in firms that have adequate formal structures for the reporting of wrongdoing have
greater confidence that by making a report internally their careers would not be adversely
affected. There was a clear difference in responses concerning internal reporting
compared with external reporting. Trainee auditors showed a reluctance to report
wrongdoing externally. When training is provided its effect is to increase confidence
among trainee auditors in the reporting structures. These findings are especially strong in
the case of reporting internally.
The findings suggest that auditing practices should examine their structures for reporting
suspected or actual wrongdoing and, where necessary, improve such structures by
encouraging staff to voice their concerns internally. Barnett et al. (1993) and King (1999)
suggest that structures specifically tailored to encourage internal reporting of suspected or
actual wrongdoing may increase the number of issues reported internally.
As regards the smaller auditing practices, organisational structure may not be a major
impediment to reporting internally. However, the lack of clear and proper channels may
act to impede the reporting of wrongdoing. This situation is easily remedied by the
introduction of a written policy on whistleblowing, noting however that it takes more
than words on a page to encourage internal disclosures of wrongdoing.
The greater tendency towards reporting wrongdoing in larger firms may reflect greater
sensitivity to wrongdoing in those firms following the recent accounting scandals related
34
to those firms. Alternatively, it may reflect greater levels of unethical activity in such
firms. Are there different levels of wrongdoing in larger or smaller firms? These are
issues for further research.
Lack of knowledge on the existence of formal structures for dealing with suspected or
actual wrongdoing a whistleblowing policy suggest that auditing practices need to
reassess the training given to their employees, focusing on methods of reporting concerns
internally and if required providing guidance on further escalation of issues to external
authorities and regulatory bodies.
Demographic factors
Weak and conflicting results on the influence of demographic factors such as Gender,
Age, Experience, and Seniority were found. This is consistent with the findings of Arnold
and Ponemon (1991). However, our results suggest that as trainee auditors progress in
their careers that they become less reluctant to report a matter of concern externally.
Situational factors
Legislative protection does not appear to be a major determinant in the decision to blow
the whistle on wrongdoing. Trainee auditors expressed little confidence in the protection
offered by legislation for whistleblowers. Nonetheless, the absence of legislative
protection influences whether they would pursue wrongdoing. Respondents’ awareness of
legislative protection had little effect on their courses of action in relation to their
consideration of the four scenarios. However, evidence from the UK suggests that the
introduction of the Public Interest Disclosure Act (1999) there has led to a doubling of
the reported incidences of fraud (Public Concern at Work, 1999). It is probable that the
introduction of legislation in the Republic of Ireland would have a similar effect.
In general trainee auditors are willing to challenge a response from the audit partner they
believe to be unsatisfactory. Given that in each scenario the majority of respondents
indicated that the issue was serious and that they were unsatisfied with the audit partner’s
response, it is surprising that respondents were not more inclined to report the matter
35
internally. Indeed, the results from the Public Hospital Ltd. scenario further indicate that
firms could do more to encourage the reporting of matters of concern internally.
Limitations of the Research
Business ethics is commonly researched using survey-based approaches such as that used
in this paper. The use of survey instruments requires researchers to define terms,
concepts, choices and scenarios in advance, and assumes that all respondents will
interpret the words and meanings in a consistent manner. Some audit firms may use a
term other than whistleblowing. As a result, respondents may not have connected the
firm’s term with whistleblowing in the questionnaire. It is also possible that respondents
may have had different interpretations of the term. It would have been methodologically
safer to have asked respondents how they would report certain issues without using the
term whistleblowing.
Measures of whistleblowing are perceptual, and the reliability of such measures must be
questioned. Responses to the scale items are the subjective perceptions of audit trainees
and may be subject to bias. Students may not actually act as they say they would in the
comfort of an anonymous questionnaire setting out hypothetical dilemmas. Audit trainees
may have an inadequate understanding of their organisations’ policies. In addition, the
direction of causality between the variables cannot be assumed. Results must be
interpreted with these limitations in mind.
Non-response bias has already been referred to earlier as being a problem with this
research. Reponses to the questionnaire may suffer from self-presentation bias, although
the manner of administering the questionnaire makes this less likely than for other
methodological approaches. The respondent trainee auditors are not a random sample,
and their views may not extrapolate to the population of trainee auditors as a whole. In
addition, the views of trainee auditors are not necessarily representative of the auditing
professional as a whole, comprising staff at partner, director and manager levels as well
as juniors and seniors.
36
The research focuses on formal systems. Dirsmith and Covaleski (1985) have pointed to
the importance of informal systems of communication as a control mechanism in large
accounting firms. Such informal systems of communication are likely to be relevant to
whistleblowing decisions. In addition, more naturalistic qualitative methodology such as
that used by Dirsmith and Covaleski (1985) would provide richer insights into
whistleblowing as a complex and individualistic process.
Some of the results of this paper are based on responses to four brief hypothetical
scenarios. These scenarios are inadequate in capturing the richness of the real life audit
environment, the formal and informal structures and networks within auditing firms,
personal ambitions, integrity and much else besides. The amount of information available
in each scenario is considerably less than would be available in a real life case. The
scenarios cannot capture the real life pressures that whistleblowers might face, such as
fear of retaliation. Accordingly, the validity of the responses to these scenarios has to be
questioned.
For auditors faced with deciding whether or not to report wrongdoing, materiality is an
essential pre-requisite (Loeb and Cory, 1989). Thus, auditors may tend to judge
wrongdoing in monetary terms, or in other words; they make a judgement on whether the
wrongdoing is sufficiently costly to warrant investigation. The majority of respondents
classified Scenarios 1, 2 and 3 as being serious/very serious, even though scenario 1 only
concerned a fraud of €12,000. Thus, the scenarios were less discriminatory than was
expected. This was probably due to the inability of the fairly inexperienced group of
respondents distinguishing material and immaterial events.
In the case of Public Hospital Ltd., a clear divergence in reporting the matter from the
other scenarios is observed. Interestingly, our findings indicate a hesitation on the part of
trainee auditors to report their concerns regarding the situation in Public Hospital Ltd.,
internally. The stereotypical view that accountants measure wrongdoing in monetary
terms might be one explanation for this finding. This suggests that auditing practices
37
must do more regarding the values they wish to see their employees adhere to, especially
concerning the reporting of non-financial wrongdoing.
Suggestions for Further Research
This preliminary study used a survey instrument to investigate whistleblowing in the
auditing profession. It is difficult for such instruments to capture the contextual
complexities of real life. More qualitative, interpretative approaches such as case studies
and in-depth interviews offer potentially richer sources of data (Crane, 1999) and allow
for study of contextual factors. For example, Dworkin and Baucus (1998) took quite an
unusual approach in examining 33 legal cases of employees fired for reporting
wrongdoing.
This study is based on responses of a fairly homogenous group of trainee auditors. The
research could be expanded to a broader group of respondents with wider experience
from different hierarchical levels, varying from partner level down to trainee level. It is
likely that personal responsibility and personal costs of whistleblowing would vary by
level of seniority, leading to different findings for different groups of respondent. In
addition, ethical judgements may vary by level of seniority. Differences amongst
antecedent variables such as these may influence reporting intentions.
The processes around reporting wrongdoing internally and externally are likely to be
quite different, with each meriting separate, more detailed study. Sweeney and Pierce
(2004) report that audit firms have experienced high staff turnover and severe staff
shortages in recent years which have undermined the effectiveness of their formal control
systems. The effect of these challenges on whistleblowing, and the mitigating steps
required by audit firms, require further study. The issue of management responsiveness to
reporting of wrongdoing, and any retaliation to whistleblowing, was not investigated in
this survey. Related to this, is the effectiveness of whistleblowing. The influence of
different types of wrongdoing in an auditing context also requires further investigation,
including variations in seriousness and in moral intensity which are a factor of the degree
of harm of the wrongdoing.
38
The influence of regulation in auditing also merits additional consideration.
Whistleblowing, and protection of whistleblowers, is regulated by law. Auditing is also
regulated by professional standards. The influences of these two sources of regulation are
likely to be different. Cross-cultural and cross-jurisdictional studies are also likely to
yield new insights. The influence of different approaches (e.g. rules-based versus
principles-based) to laws and regulations can be studied by comparing responses of
respondents from different countries.
Additional situational variables, especially those relating to audit clients, might be
factored into the research design. For example, the financial well-being of audit clients
may influence likelihood of auditors reporting wrongdoing. Whether auditors are more or
less likely to report wrongdoing where a client is financially distressed would add
considerably to our insights on whistleblowing.
As explained in the Research Methodology section, confidence was measured narrowly
in this paper as the effect on an individual’s career prospects. Auditors’ belief that
reporting wrongdoing would result in positive outcomes (such as exposing the
wrongdoing), and would lead to positive outcomes for the auditor, might be investigated
in the future.
Further research could examine the components of adequate internal reporting channels,
especially given the requirement upon public companies in the US to institutionalise such
structures. The findings also indicate that trainee auditors have less confidence in the
external reporting structures than in the internal reporting structures within their firm.
Future research could investigate the variables that might affect this level of confidence.
Furthermore, the research has identified that in a non-financial situation, auditors are less
willing to report a matter of very serious concern. Future research could expand upon this
preliminary finding and investigate whether or not it is reasonable to conclude that
auditors pay greater attention to wrongdoing that is quantifiable in “dollar terms”.
39
Concluding Comment
While overall trainee auditors have confidence in current internal reporting structures, our
results indicate that firms could do more to encourage the reporting of concerns
internally. This is especially true where concerns relate to non-financial issues.
Furthermore, given that obligations upon auditors to report matters to external authorities
are expanding, it is important that auditing practices develop policies to meet these
requirements. This is critical in the light of our finding that trainee auditors believe their
career will be adversely affected by reporting a matter externally. Our findings suggest
that legislation in this area may encourage greater reporting of wrongdoing among trainee
auditors. The conflict between legal requirements on auditors to report wrongdoing on
the one hand, and limited legal protection on the other hand, is a matter that needs to be
addressed by policy makers. The research results are suggestive and only provide
preliminary evidence on this important topic.
End notes
1
Auditors have a number of obligatory duties to report wrongdoing under legislation in Ireland. Under
section 194 of the Companies Act 1990 auditors have a duty to report if in their opinion proper books of
account are not being kept. Section 74 of the Company Law Enforcement Act 2001 introduced a
requirement on auditors to report breaches of the Companies Act and suspicions of fraud. Section 59 of the
Criminal Justice (Theft and Fraud Offences) Act 2001 imposes a duty to report theft and fraud offences on
accountants (who are not employees of the firm) and on auditors. The Money Laundering Regulations 2003
impose on practicing accountants an obligation to report suspicions of money laundering and of terrorist
activities. Section 1079 of the Taxes Consolidation Act, 1997 imposes an additional obligation on auditors
if they become aware that the company has knowingly or wilfully delivered a false tax return or false
information in connection with tax. The section requires the auditor or adviser, unless the situation is
rectified, to cease work with the company and to advise the Revenue authorities of such cessation. Finally,
Section 34 of the Stock Exchange Act, 1995 imposes whistleblowing obligations on auditors of approved
stock exchanges and on authorised member firms in a variety of circumstances including the insolvency of
the auditor’s client, inaccuracies or omissions in returns made by the client to the Central Bank, material
defects in the client’s accounting or control systems and any intention of the auditor to qualify the audit
opinion.
2
Kingston Cotton Mill Company (No. 2) [1896] Ch 279, at 288–289.
3
The first step was to seek permission of the Institute of Chartered Accountants in Ireland to administer the
questionnaire during one of the Institute’s courses. The Institute requested sight of the questionnaire. As a
result, one change to the questionnaire was required: the removal of any reference to big-four/non-big four
audit practices. Consequently, the question “Are you employed by a big-four/non-big four audit practice?”
was replaced by the question “How many staff does your Firm employ?”.
The Institute sent an email to all students attending the course advising them that the questionnaire would
be administered at one of their lectures. There was no requirement on students to complete the
questionnaire. Non-completion of the questionnaire had no consequences for the students (for example, the
researcher was not one of their lecturers, and was completely independent of the Institute).
4
The questionnaire was circulated to students from 8.30am onwards. At the start of the lecture at 9am, the
lecture allowed 10-15 minutes of class time for completion of the questionnaires, which were then returned
to the researcher. Further completed questionnaires were collected at the break at 11.00 am. Two factors
40
account for the low response rate. Firstly, it is quite common for final year students to collect their lecture
notes and to leave immediately, favouring self-study over class attendance. Secondly, students may have
had limited motivations to complete the questionnaire as the researcher administering the instrument was
not their lecturer.
5
Section 10 of the Criminal Justice (Theft and Fraud Offences) Act 2001.
41
References
Applebaum, S.H., Grewal, K., Mousseau, H., 2006. Whistleblowing: international
implications and critical case analysis. Journal of American Academy of Business 10
(1), 7-13.
Arnold, D.F., Ponemon, L.A., 1991. Internal Auditors Perceptions of Whistle Blowing
and the Influence of Moral Reasoning, Auditing: A Journal of Practice & Theory, 10
(2), 1-15.
Barnett, T., 1992. A preliminary investigation of the relationship between selected
organizational characteristics and external whistleblowing by employees. Journal of
Business Ethics 11 (12), 949-959.
Barnett, T., Cochran, D.S., Taylor, G.S., 1993. The internal disclosure policies of privatesector employers: An initial look as their relationship to employee whistleblowing.
Journal of Business Ethics 12 (2), 127-136.
Barrett, M., Cooper, D.J., Jamal, K. 2005. Globalization and the coordination of work in
multinational audits. Accounting, Organizations and Society 30 (1), 1-24.
Courtemanche, G., 1988. The ethics of whistleblowing. The Internal Auditor 45 (1), 3641.
Crane, A., 1999. Are you ethical? Please tick yes or no: On researching ethics in business
organisations. Journal of Business Ethics 20 (3), 237-248.
Craswell, A.T., Francis, J.R., Taylor, S.L., 1995. Auditor brand name reputations and
industry specializations. Journal of Accounting and Economics 20 (2-3), 297-322.
De George, R.T. 1982. Business Ethics. Macmillan Publishing Company, Inc, New York,
NY.
De George, R.T. 1990. Whistleblowing. In White, T.I. (Ed) Business Ethics: A
Philosophical Reader. Macmillan Publishing Company, Inc, New York, NY, 515530.
DeAngelo, L.E., 1981. Auditor size and audit quality. Journal of Accounting and
Economics 3, 183-199.
DeFond, M., 1992. The association between changes in client firm agency costs and
auditor switching. Auditing: A Journal of Practice and Theory 11 (1), 16-31.
42
DeFond, M.L., Francis, J.R., Wong, T.J., 2000. Auditor industry specialization and
market segmentation: Evidence from Hong Kong. Auditing: A Journal of Practice and
Theory 19 (1), 49-66.
Dirsmith, M.W., Covaleski, M.A., 1985. Informal communications, nonformal
communications
and
mentoring
in
public
accounting
firms.
Accounting,
Organizations and Society 10 (2), 149-169.
Doucet, M.S., Eprile, B., 2000. The public interest: Ethical issues facing external auditors
and financial reporting regulators. Research on Accounting Ethics 6, 221-242.
Dozier, J.B., Miceli, M.P., 1985. Potential predictors of whistle blowing: A prosocial
behavior perspective. The Academy of Management Review 10 (4), 823-836.
Dworkin T.M., Baucus, M.S., 1998. Internal vs. external whistleblowers: A comparison
of whistleblowing processes. Journal of Business Ethics 17 (12), 1281-1298.
Francis, J.R., Wilson, E., 1988. Auditor changes: A test of theories relating to agency
costs and auditor differentiation. The Accounting Review 63 (4), 663-682.
Grant, C., 2002. Whistleblowers: Saints of secular culture. Journal of Business Ethics 39,
391-399.
Irvine, R. 1988. Professionals in a catch 22 situation. The Independent, 12 January 1988.
Jubb P.B., 1999. Whistleblowing: A restrictive definition and interpretation. Journal of
Business Ethics 21 (1), 77-94.
King G., 1999. The implications of an organization’s structure on whistleblowing.
Journal of Business Ethics 20 (4), 315-326.
King, M.F., Bruner, G.C., 2000. Social desirability bias. A neglected aspect of validity
testing. Psychology and Marketing 17 (2), 79-103.
Latané, D., Darley, J. M., 1970. The unresponsive bystander: Why doesn't he help?
Appleton-Century Crofts, New York, NY.
Lewis, D., 2001. Whistleblowing at work: On what principles should legislation be
based? The Industrial Law Journal 30 (2), 169-193.
Likierman, A., 1989. Ethical dilemmas for accountants: A United Kingdom perspective.
Journal of Business Ethics 8 (8), 617-629.
43
Lindsay, R.M., Lindsay, L.M., Irvine, V.B., 1996. Instilling ethical behaviour in
organizations. A Survey of Canadian companies. Journal of Business Ethics 15 (4),
393-407.
Loeb, S.E., Cory, S.N., 1989. Whistleblowing and management accounting: An approach.
Journal of Business Ethics 8 (12), 903-916
Lovell, A., 2002. Ethics as dependant variable in individual and organisational decision
making. Journal of Business Ethics 37 (2), 145-163.
Marcus, A.A., 1985. Professional autonomy as a basis of conflict in an organisation.
Human Resource Management 24 (3), 311-328.
Miceli, M.P., Near, J.P., 1988. Individual and situational correlates of whistle-blowing.
Personnel Psychology 41 (2), 267-281.
Miceli, M.P., Near, J.P., Schwenk, C.R., 1991. Who blows the whistle and why?
Industrial & Labor Relations Review 45 (1), 113-130.
Mitschow, M.C., Langford, D., 2000. Whistleblowing by independent auditors: An
extension of general ethical resistance models. Research on Accounting Ethics 6, 91106.
Near, J.P., Miceli, M.P., 1985. Organizational dissidence: The case of whistle-blowing.
Journal of Business Ethics 4, 1-16.
Near, J.P., Miceli, M.P., 1994. Whistleblowing: Reaping the benefits. The Academy of
Management Executive 8 (3), 65-72.
Near, J.P., Miceli, M.P., 1996. Whistle-Blowing: Myth and reality. Journal of
Management 22 (3), 507-526.
Near, J.P., Baucus, M.S., Miceli, M.P., 1993. The relationship between values and
practice: Organizational climates for whistleblowing. Administration & Society 25
(2), 204-226.
O’Clock, P., Okleshen, M., 1993. A comparison of ethical perceptions of business and
engineering majors. Journal of Business Ethics 12 (9), 677-687.
O’Leary, C., Cotter, D., 2000. The Ethics of final year accountancy students: An
international comparison. Managerial Auditing Journal 15 (3), 108-115.
O’Leary, C., Radich, R., 2001. An analysis of Australian final year accountancy students’
to ethical attitudes. Teaching Business Ethics 5 (3), 235-249.
44
Otley, D.T., Pierce, B.J., 1995. The control problem in public accounting firms: An
empirical study of the impact of leadership style. Accounting, Organizations and
Society 20 (5), 405-420.
Pater, A., van Gils, A., 2003. Stimulating ethical decision-making in a business context:
Effects of ethical and professional codes. European Management Journal 21 (6), 762772.
Perry, N., 1998. Indecent exposures: Theorizing whistleblowing. Organization Studies 19
(2), 235-57.
Pierce, B.J., Sweeney, B., 2004. Cost-quality conflict in audit firms: An empirical
investigation. European Accounting Review 13 (3), 415-441.
Ponemon, L.A. 1990. Ethical judgments in accounting: A cognitive-developmental
perspective. Critical Perspectives on Accounting 1 (2), 191-215.
Public Concern at Work, 1999. An Introduction to the Legislation with Authoritative
Notes on its Provisions, Section by Section. Public Concern at Work, London.
Randall, D.M., Gibson, A.M., 1990. Methodology in business ethics research: A review
and critical assessment. Journal of Business Ethics 9 (6), 457-471.
Sims, R.L., Keenan, J.P., 1998. Predicators of external whistleblowing: organizational
and intrapersonal variables. Journal of Business Ethics 17 (4), 411-421
Somers, M.J., Casal, J.C., 1994. Organizational commitment and whistle-blowing: A test
of the reformer and the organizational man hypothesis. Group & Organization
Management 19 (3), 270-284.
Sweeney, B., Pierce, B.J., 2004. Management control in audit firms. A qualitative
examination. Accounting, Auditing and Accountability Journal 17 (5), 779-812.
Thorley, N., Stevens, K., Clarke, P., 1998. Factors that affect ethical reasoning abilities of
US and Irish small-firm accountancy practitioners. Research on Accounting Ethics 4,
145-165.
Thorne L., Hartwick, J., 2001. The Directional Effects of Discussion on Auditors’ Moral
Reasoning. Contemporary Accounting Research 18 (2), 337-361
Tsui, J.S., 1996. Auditors’ ethical reasoning: Some audit conflict and cross cultural
evidence. The International Journal of Accounting 31 (1), 121-133.
45
Vinten, G., 1992a. Whistle blowing: Corporate help or hindrance? Management Decision
30 (1), 44-48.
Vinten, G., 1992b. Whistleblowing auditors: A contradiction in terms? Occasional
Research Paper No. 12, The Chartered Association of Certified Accountants, London.
Vinten, G., 2003. Whistleblowing: The UK experience, Part 1. Management Decision 41
(9), 935-943.
Vinten, G., 2004. Whistleblowing: The UK experience, Part 2. Management Decision 42
(1-2), 139-151.
Williams, P.F., 2000. A social view on accounting ethics. Research on Accounting Ethics
6, 259-272.
46
Appendix 1: Summary of Questionnaire (full questionnaire is available from the authors on
request
Preliminary questions 1-9:
Preliminary questions on (i) gender, (ii) age, (iii) years experience, (iv) Job title, (v) size of
employer, (vi) adequate formal structures for reporting incidences of suspected/actual wrongdoing,
(vii) training on statutory whistleblowing duties, (viii) existence of firm whistleblowing policy, (ix)
awareness of legislation protecting whistleblowers
Scenarios
Scenario 1: Morris Ltd.
You have been appointed Audit Senior of the audit team to perform the interim-audit at Morris Ltd,
a medium sized, family-run manufacturing company. The company has expanded rapidly over the
last three years, growing its sales in Eastern Europe by in excess of 50% per annum. The draft
financial statements for the current period show that Turnover was €5.8m and Profit after Tax was
€0.57m. While auditing the stock purchases you discover that the Production Manager insists on
paying one of the suppliers in cash only. When you ask the Production Manager about this situation
he explains that he is able to negotiate discounts by paying for the goods in cash. However, upon
further investigation you discover that the Production Manager is in fact overstating purchases from
this supplier and taking the money for himself. The scheme has gone unnoticed because of weak
internal controls and the close relationship between the Production Manager and Mr. Morris, the
Managing Director. You estimate the amount of the cash misappropriated in the current period to be
€12,000. You report the issue to the Audit Partner who assures you that the matter will be dealt with
and thanks you for your diligent work. However during the final audit (6 months later) you discover
that the scheme is still in operation.
Scenario 2: Collins Ltd.
You have been appointed the Audit Senior of the audit team to perform the audit at Collins Ltd. the
Irish subsidiary of a FirstDrug Inc. a very large pharmaceutical company quoted on the New York
Stock Exchange. Collins Ltd. employs over 600 people at its European Headquarters in Dublin, a
further 300 at a production facility in Cork and 130 in its research centre in Galway. During the
course of your audit work you become concerned about the company’s treatment of R&D
expenditure. In particular you believe that the company is classifying some research expenditure as
development expenditure and capitalising it in the Balance Sheet. This accounting treatment has a
material impact on the financial statements of Collins Ltd. You pass on your concerns to the Audit
Partner who subsequently invites you into his office for a chat. While noting your concern he
explains that the amounts involved are not material from the overall Group perspective. He further
points out the scale and importance of their operations in Ireland and impresses upon you that this
client is a very important client for your Firm globally. Noting that you still have a year to do under
the terms of your training contract and concerned for your welfare and career prospects, he suggests
that you “let sleeping dogs lie”.
47
Appendix 1: Summary of Questionnaire (full questionnaire is available from the authors on
request
Scenario 3: First Province Bank
You have been appointed Audit Senior to carry out the interim audit on First Province Bank, a large
bank that in recent years has specialised in providing mortgages in the Irish market. As part of your
audit programme you place emphasis on the bank’s mortgage book, as this is its most significant
activity. After detailed investigation you become concerned about irregularities in relation to the
variable interest rate charged on mortgages to first time buyers. In particular you have noticed that
in a number of branches the variable rate charged to this class of customer fluctuates more often
than the underlying base rate, with the consequential effect of overcharging mortgage holders in the
month in which the fluctuation occurs. Further examination of these fluctuations did not reveal a
definite pattern. You recognise immediately that substantial sums of money could be raised by even
a small adjustment to the variable rate. You raise these concerns with the Audit Partner who assures
you that there is nothing to worry about citing the reputation of the bank and its management, but
curiously did not elaborate further.
Scenario 4: Public Hospital Ltd.
You have been appointed the Audit Senior of the audit team to perform the audit at Public Hospital
Ltd. a state funded hospital in the Eastern Regional Health Authority. During the course of your
audit work on the hospital’s creditors you discover a file relating to Hospital Waste Ltd, a specialist
Firm contracted by the hospital to safely dispose of its used surgical equipment. You discover a
memo from the Manager of the hospital’s Waste Disposal Unit to the Chief Executive of the
Hospital, outlining her concerns regarding the repute of Hospital Waste Ltd. Specifically her
concern relates to a conversation she overheard among Hospital Waste Ltd. employees indicating
that all the waste is being buried. After reading through the file you uncover the response from the
Chief Executive who notes that there is no documentary evidence for her allegations and that in his
opinion no further investigation of the matter is warranted. This reply is dated 7 months ago. You
bring your concerns to the Audit Partner who reminds you that the audit is being performed on
Public Hospital Ltd. and not on Hospital Waste Ltd. and that there is nothing he can do.
Questions 1-4 on scenarios
(i) Rate the seriousness of the issue; (ii) Rate satisfaction with the Audit Partner’s response; (iii)
What further action would you take? (iv) Would legislation protecting whistleblowing employees
change your chosen course of action in (iii) above?
General questions 1-5
General questions on (i) Ability to resolve difficult ethical dilemmas if they arose in practice; (ii)
Confidence in current employment legislation protecting whistleblowing; (iii) Confidence that
careers prospects would not suffer from blowing the whistle externally; (iv) Confidence that careers
prospects would not suffer from blowing the whistle internally; (v) Pursuance of wrongdoing
regardless of existence of legislation protecting whistleblowing.
48