Whistleblowing in Audit Firms: Examining Individual Workplace Beliefs

All that is necessary for the triumph of evil is that good men do nothing. Introduction The auditing profession is unusual in its depth and breadth of authoritative standards, including the AICPA Code of Conduct, state ethics laws and regulations, professional auditing standards and firm–sponsored policies. Despite, or perhaps because of, this extensive set of guidelines, numerous accounts in the press as well as academic research indicate that auditors at times violate audit standards (Kaplan 1995; Lee 2002). Indeed, a study by Otley and Pierce (1996) found that a majority of audit seniors reported that their managers had asked them either directly or indirectly to underreport time. Moreover, Lord and DeZoort (2001) find that almost one-quarter of the auditors in their study reported the existence of either obedience or conformity pressures from someone within the firm. Other evidence suggests that such pressures and negative consequences occur at all levels and across accounting firms of all sizes (e. Prior research has examined whistleblowing within corporate settings, but few have examined it within the auditing profession. Although auditors, by definition, report on the statements and disclosures of their clients, they do not typically direct this type of professional skepticism and independent disclosure toward their peers. However, audit quality, and ultimately firm reputation may suffer when auditors violate professional standards. Audit firms can potentially reduce unethical acts by encouraging auditors to report such behaviors. Indeed, 2 Miceli and Near (1994) note that " …costs of early detection are generally lower than those incurred when wrongdoing is not detected early. " The Sarbanes Oxley Act of 2002 (SOX) requires public companies to provide their employees with confidential reporting mechanisms, also known as whistleblower hotlines, for reporting illegal or unethical behavior. The purpose of providing such reporting mechanisms is to encourage employees to report wrongdoing within the company, and protect reporters from negative repercussions. 1 Although the Public Company Accounting Oversight Board (PCAOB) does not require registered audit firms to provide confidential reporting mechanisms, some firms have implemented them voluntarily. Given the recent increased focus on audit firm quality control (see for example PCAOB 2004a, 2004b), we believe that exploration of auditor reporting antecedents is both timely and relevant. This study explores a unique set of workplace beliefs that may influence auditors' intentions to report unethical behavior. We view the decision to report ethical violations as containing layers of influences. At the outermost layer is …