The purpose of the research program reported in this thesis, is to investigate some personal and organisational attributes that underlie ethical decision-making necessary for auditor independence judgments in the Big Six audit firms. Supported by Etzioni (1988), this thesis views auditors as social human beings with a full range of emotions, beliefs and prejudices, influenced by powerful social and cultural forces. Hence, this research program extends Ponemon's and Gabhart's (1990) cognitive-developmental model of auditor independence judgments by introducing the influence of subconscious personal beliefs in the context of auditor-client management conflict. Schein's (1984) concept of organisational culture is further proposed as a collective factor that underlies ethical decision-making as suggested by Etzioni (1988).
This research program was motivated by two concerns. The first concerns the crisis of credibility facing the auditing profession in light of well publicised audit failures and accusations of poor ethical performance. The second concerns the lack of recognition of the complex interrelationship between auditors' social and cultural learning, auditor independence and ethical decision-making in current behavioural auditing research. This interdisciplinary research program, therefore, develops an overall theoretical model of auditors' individual complex decision-making and organisational culture. To achieve a more holistic approach to ethical decision-making, an individual decision-making model synthesizes the moral cognitions central to Trevino's (1986) conceptual model of ethical decision making in organisations and socially learnt personal beliefs presented by Ashkanasy's (1989) hierachial three level model. This model then introduces Schein's (1984) concept of organisational culture as an influence on individual decision-making.
To investigate the complex nature of auditors' ethical decision-making, a multi-method approach is used. The program comprises two triangulations and a replication involving four inductive and three deductive studies. Data for the triangulations and replication were collected from six first tier auditing firms in three different large city locations. In all, subjects from eighteen Big Six firm offices participated in this research program.
Level 1 is examined first. This level posits that the client firm's situational factors give client management the bargaining power in an audit conflict. As the first part of a triangulation, an action research study clarified that client factors: financial condition, size of fees, and tendering affected independence during an audit conflict. Results also indicated that disputes over materiality judgments between auditors and client management occur more frequently than is commonly known.
The second component of the triangulation was an ANOVA repeated measures field study using a materiality dispute and client economic factors to test auditor acquiescence in location 1. Results indicated that auditors were more likely to succumb to management pressure when the client was economically strong. A replication in location 2 supported these results. The third part of the triangulation was laboratory study which found that auditing students were not affected by management pressure, suggesting that the difference between auditing students and practitioners may be a result of acculturation in the audit firms.
Building on the overall theoretical model, levels 2 and 3 introduce personal characteristics of moral reasoning development (Kohlberg, 1969) and personal beliefs in justice (Lerner, 1980) with the independence dilemma over a materiality judgment involving client economic situational variables at level 1. This independence dilemma was the basis for initiating interactive decisional processes of levels 2 and 3. A replication using the same population samples for the level 1 studies (location 1 and 2), show that these decisional processes resulted in an interaction between Kohlberg's (1969) levels of moral cognitions and Lerner's (1980) "beliefs in justice". A mixed factorial ANOVA design demonstrated the processes of complex decision-making model and how subconscious personal beliefs (from a lifetime of learning), influence ethical decision outcomes.
Three styles of auditor decision-making emerged in the studies: "autonomous", "accommodating" and "pragmatic". Auditors with an autonomous decision-making style and who have strong just world beliefs, were found to be the least acquiescent to client management demands out of all the groups in the two studies. Similarly, auditors with accommodating decision-making style and "belief in an unjust world" were found to be the most acquiescent group to client management. These findings indicate that personal beliefs affect moral cognitions.
As the first part of the second triangulation, an action research study reports findings from a series of interviews with audit partners in location 3, designed to inductively explore the organisational values of Big Six audit firms. The results showed that the Big Six audit firms tended to focus on audit as a business servicing clients rather than their social responsibility to audit independently. These results suggest that the culture of Big Six audit firms focus on personal economic gain or "I" of Etzioni's (1988) paradigm rather than the "We" of community responsiveness.
As the second component of the triangulation, a quantitative study examined the role of organisational culture on the underlying constructs of ethical decision-making. Using a modified scale of O'Reilly, Chatman and Caldwell's (1991) dimensions of organisational culture, a factor analysis provided a stable measure of organisational culture of Big Six audit firms. A MANOVA analysed orgarusational cultural dimensions across the Big Six firms and found cultural homogeneity across the Big Six firms. Importantly, the results of a multiple regression analysis show that auditors' moral reasoning development and personal beliefs are related to the organisational culture.
These relationships did not separate the three groups of auditors identified earlier. Instead, the dimensions of, "outcome orientation" (composed of: competitiveness, high expectations, achievement oriented, results oriented, and analytical value items) and "being aggressive" emerged as the values that influenced auditors' ethical decision-making. The value dimension of a "respect for people" (comprising fairness, respect for individual rights, social responsibility, and tolerance items) which was hypothesized to characterise the autonomous decision-making style, did not emerge. This suggests that auditors' individual ethical decision-making was stifled by the "up and out" culture of the firms similar to Ponemon's (1992) findings. The homogenous culture of Big Six firms also indicates a lack of diversity in values and beliefs.