Ethical perception of accounting program graduates, an investigation into the mandated AICPA curriculum change

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... compare ethical perceptions of newly graduated accounting students in both programs after the AICPA s mandated curriculum change to accounting education in the state of New York; and (b) to bridge the. .. fulfilled the goals of the AICPA s mandated curriculum change (Read, Raghunandan, & Brown, 2003, p 31) The AICPA s goal in expanding the educational requirements by 30 credits was to improve the quality... be found on the ethical perceptions of accounting graduates concerning the new changes in the accounting curriculum mandated from the AICPA (Taylor & Rudnick, 2005; Ritter, 2006) The literature

ETHICAL PERCEPTION OF ACCOUNTING PROGRAM GRADUATES: AN INVESTIGATION INTO THE MANDATED AICPA CURRICULUM CHANGE by Nicholas John Koumbiadis A Dissertation Presented in Partial Fulfillment of the Requirements for the Degree DOCTOR OF BUSINESS ADMINISTRATION UNIVERSITY OF PHOENIX February 2011 UMI Number: 3467479 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI 3467479 Copyright 2011 by ProQuest LLC. All rights reserved. This edition of the work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, MI 48106-1346 iv ABSTRACT Corporate scandals in the late 90s and early this century led to a decline in the public’s trust of the accounting profession. Since that time, the government, companies, and universities have attempted to rebuild that trust through a number of methods, such as passing laws requiring better regulation and more disclosure as well as requiring improved ethics education for future accountants. It is this latter issue that is the focus of this study. The purpose is to examine students who have recently graduated from the standard 120 credit accountancy program and compare and contrast their ethical perceptions with students who have recently graduated from the AICPA-mandated 150 credit accountancy program which includes 30 extra credits with a focus on ethics. Recently graduated accounting students from selected Association to Advance Collegiate Schools of Business (AACSB) were asked to fill out a cross-sectional survey based on Victor and Cullen’s (1988) Ethical Climate Questionnaire (ECQ) to determine whether a difference exists between the two groups’ ethical perceptions. The nine hypotheses derived from the ECQ were tested using an independent sample t-test and Levene’s test for the homogeneity of the variances between the two groups. Compared with graduates of the 120 credit program, 150 credit program graduates scored significantly higher in ethical perceptions on five domains: Company Profit, Friendship, Team Interest, Personal Morality, and Rules, when testing at a confidence level of 95%. The two groups were not significantly different in the domains of Self-Interest, Efficiency, Social Responsibility, or Laws. This study is part of a growing body of research on ethics in accounting and this project will contribute to future research on similar topics v DEDICATION This work is first dedicated to my Lord and Savior Jesus Christ. For in Him I live and move, and have my being. Secondly, this work is dedicated to my beautiful wife Janice, and my three lovely children John, Julia, and Gabrielle for their patience, love, and continued support throughout my journey in completing my doctoral dissertation. My wife made many sacrifices and is the main reason why I have gone so far. I will never cease to appreciate my wife and children daily. Also, I dedicate this work to my parents John and Irene and my sister Popi who have showed me unconditional love and support through the most difficult times in my life. I will always remember my family how they believed in me. vi ACKNOWLEDGMENTS I have been on this long journey for quite some time and I am beholden to many. First, I am indebted to my mentor of my committee, Dr. John Parham, for his continued patience, advice, encouragement, and his attention to detail throughout the whole process of writing a doctoral dissertation. I also want to thank the other committee members, Dr. John Okpara and Dr. Brian Sloboda for their knowledge and recommendations. It would be an unfair if I did not take this moment to acknowledge my colleague and my friend, Dr. John Okpara. Dr. Okpara, I really appreciate your friendship and your commitment to seeing me develop as a doctoral student. Your wisdom and support is greatly appreciated and I want you to know that you will always remain dear to my heart. I also want to acknowledge two administrative individuals, Misa Alexander and David Grigorieff for their patience and continuous support and encouragement from the beginning to the end of my studies. You both have communicated timely information and kept me well informed of the policies and procedures of the University. Above all, you treated me with professional care, courtesy, and understanding throughout the entire process. Finally, I am so grateful to my wife Janice for her support, patience, and sacrifice during the writing for my doctoral dissertation. I will always love and cherish my commitment to her and my family all the days of my life. vii TABLE OF CONTENTS LIST OF TABLES ........................................................................................................ xi LIST OF FIGURES ...................................................................................................... xii CHAPTER 1: INTRODUCTION ....................................................................................... 1 Background..................................................................................................................... 3 Problem Statement.......................................................................................................... 6 Purpose Statement .......................................................................................................... 7 Significance of the Study.............................................................................................. 10 Methods ........................................................................................................................ 11 Research Questions ...................................................................................................... 13 Theoretical Framework ................................................................................................ 15 Ethical Theory .......................................................................................................... 15 Kohlberg’s Theory ................................................................................................... 16 Views of Ethical Behavior ........................................................................................ 17 Ethics in Post-Secondary Education ........................................................................ 18 Scope ............................................................................................................................ 20 Limitations.................................................................................................................... 20 Chapter Summary ......................................................................................................... 21 CHAPTER 2: REVIEW OF THE LITERATURE ........................................................... 24 Historical Perspectives ................................................................................................. 25 Cognitive Moral Reasoning .......................................................................................... 27 Opposing Views........................................................................................................ 28 Contributions to Kohlberg’s Theory............................................................................. 29 Defining Issues Test ................................................................................................. 29 viii Victor and Cullen’s Ethical Climate ............................................................................. 30 Egoism ...................................................................................................................... 33 Benevolence.............................................................................................................. 35 Principle ................................................................................................................... 37 Locus of Analysis ......................................................................................................... 38 Morality .................................................................................................................... 40 Self Values ................................................................................................................ 42 Efficiency Teaching Ethics ....................................................................................... 42 Social Responsibility ................................................................................................ 44 Friendship and Team Interest .................................................................................. 45 Business Ethics and Legislation and Rules .............................................................. 46 Company Rules and Procedures .............................................................................. 48 Ethics and Accounting Curriculum .............................................................................. 50 CHAPTER 3: METHODS ................................................................................................ 54 Research Design ........................................................................................................... 54 Research Methods and Design Appropriateness .......................................................... 55 Sample and Procedures................................................................................................. 56 Consent, Confidentiality, and Geographic Location .................................................... 59 Consent..................................................................................................................... 59 Confidentiality .......................................................................................................... 60 Geographical Location ............................................................................................ 60 Data Collection Procedures and Rationale ............................................................. 61 Instrumentation ............................................................................................................. 62 Measure of Variables ............................................................................................... 63 Reliability and Validity ................................................................................................ 64 ix Data Analysis................................................................................................................ 65 Chapter Summary ......................................................................................................... 66 CHAPTER 4: RESULTS AND DISCUSSION ................................................................ 67 Descriptive Characteristics ........................................................................................... 67 Sample Distribution ................................................................................................. 67 Findings ........................................................................................................................ 70 Factor Analysis ........................................................................................................ 70 Hypotheses Testing................................................................................................... 72 Summary of Findings ................................................................................................... 83 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS .................................... 85 Discussion of the Statistical Results, their Significance, and Limitations ............... 85 How the Results Fit with the Existing Literature ..................................................... 88 Implications for Accounting Education Policy ........................................................ 93 Recommendations for Future Research ................................................................... 94 REFERENCES ................................................................................................................. 98 APPENDIX A: KOHLBERG’S LEVELS AND STAGES OF COGNITIVE MORAL DEVELOPMENT ........................................................................................................... 116 APPENDIX B: OFFICE OF THE PROFESSIONS NEW YORK EDUCATION DEPARTMENT: LICENSE REQUIREMENT.............................................................. 117 APPENDIX C: ETHICAL CLIMATE QUESTIONNAIRE .......................................... 118 APPENDIX D: SIGNED PERMISSION TO USE AN EXISTING SURVEY-ECQ .... 121 APPENDIX E: INFORMED CONSENT FOR PARTICIPANTS 18 YEARS OF AGE AND OLDER ................................................................................................................. 122 x APPENDIX F: FACTOR ANALYSIS ........................................................................... 123 APPENDIX G: DEMOGRAPHIC QUESTIONS .......................................................... 124 xi LIST OF TABLES Table 1: Theoretical Ethical Climate Types ....................................................... 32 Table 2: Ethical Climate Types of the Locus of Analysis .................................. 39 Table 3: Sample Size Determination .................................................................. 57 Table 4: Questionnaire Response Summary ....................................................... 68 Table 5: Demographic Characteristics of Respondents (N=286) ....................... 70 Table 6: Variable Means and Standard Deviations of both accounting programs ............................................................................................................................. 73 Table 7: Independent Sample Test-Self-Interest, Company Profit, and Efficiency ............................................................................................................................. 74 Table 8: Independent Sample Test-Friendship, Team Interest, and Social Responsibility ..................................................................................................... 77 Table 9: Independent Sample Test-Personal Morality, Rules, and Laws .......... 80 xii LIST OF FIGURES Figure 1. STUDY VARIABLES FROM THE ITEMS FOUND IN THE DQ AND ECQ. .......................................................................................................................................... 55 Figure 2. THE SUM OF THE CONFIRMED HYPOTHESES USING THE ETHICAL CLIMATE TYPES PRECURSOR ON PROGRAM.. ...................................................... 84 1 CHAPTER 1: INTRODUCTION In the early 2000s, negative publicity caused by the Enron scandal, which led to the bankruptcy of Enron and the demise of accounting firm Arthur Andersen, may have affected the public perception of the accounting profession (Zabihollah, 2004). In a 2002 Gallup poll, positive ratings of accounting professions fell 47% to 31% and negative ratings increased from 8% to 31% after the Enron scandal (AICPA, 2005). In the aftermath of Enron/Arthur Anderson and other accounting scandals (Adelphia Communications, Dynegy, WorldCom, Tyco), several measures including the SarbanesOxley (SOX) Act of 2002 were put in place to prevent misdeeds by public accountants. These events have also increased interest in the moral reasoning of public accountants. A study by Rau and Weber (2004) examined whether the Enron event had heightened auditors’ moral reasoning, measured by the perceived moral intensity embedded in ethical dilemmas they faced. Results showed that auditors’ awareness of moral reasoning increased significantly after the scandal (Koumbiadis, Okpara, 2008; Dellaportas, 2006; Titard, 2004; Esmond-Kiger, 2004). The commitment and subsequent discovery of some accountants’ unethical behaviors also resulted in the modification of the number of requirements in the accounting curriculum in post-secondary institutions by the American Institute of Certified Public Accountants (AICPA). To improve the level of professional responsibility and ethics, changes in post-secondary instruction were imminent (Desplaces, Melchar, Beauvais, & Bosco, 2007; Mantzke, Carnes, & Tolhurst, 2005). However, a review of relevant literature revealed that little research had been conducted on the effectiveness of the AICPA-mandated curriculum change in bettering 2 students’—and thereby future accountants’—views of ethics and professional responsibility (Ritter, 2006; Taylor & Rudnick, 2005). Accounting curriculum revisions by the AICPA included the addition of the 150 credit rule, which has been adopted by 40 states (Allen & Woodland, 2006; De Barry, 2003; Taylor & Rudnick, 2005). According to the New York State Education Department (NYSED), the 150 credit rule required accounting students to complete courses in ethics and professional responsibility in order to qualify to take the Certified Public Accountant (CPA) exam (see Appendix A). Accounting students could still enroll in a 120 credit accounting program; however, upon finishing this, they would not be qualified to sit for the CPA exam. Some experts have raised concerns regarding the effectiveness of this curriculum change and whether it is needed (Bierstaker, Howe, & Seol, 2005). The AICPA’s ultimate goal with the 150 credit rule was to increase the quality of work produced by accountants given that the business world environment is often changing (AICPA, 2010). The quality of public accountants’ work is dependent upon the demand for ethical accounting, auditing, and assurance services evidenced by financial reporting (Allen & Woodland, 2006; Carpenter & Stephenson, 2006). The changes elicited by the AICPA reflected a growing interest in the ethical perceptions of newly graduated accounting students (Reckers, 2006). However, it was unclear as to whether perceptions of ethical reasoning differed between accounting graduates in the 150 credit program compared to those in the 120 credit program. The purpose of this study, therefore, was to determine the efficacy of the new 150 credit program and if it achieved the desired results. The study used Kohlberg’s (1968) theory 3 on moral development and cognitive moral reasoning as a theoretical framework. Newly graduated accounting students from selected colleges in New York State were surveyed using a questionnaire developed by Victor and Cullen (1988), which was based on Kohlberg’s (1968) theory on moral development and cognitive moral reasoning. Newly graduated accounting students were defined in this study as those who graduated from either of the two accounting programs in the last two years. Chapter 1 provides background of the problem and the purpose of this study. Background Unethical behaviors among public accountants prompted a revision in postsecondary education for accounting majors (Earley & Kelly, 2004). The downfall of some large companies also led to more demands on ethical conduct in the accounting profession (Puxty, Sikka, & Willmott, 1994). Ethical decision making, the new 150 credit requirement, compliance with the Sarbanes-Oxley (SOX) Act of 2002, and an increase in professional responsibility within the field of professional accountancy were among the demands encountered by graduating accounting students as well as the business schools they attended (Malone, 2006). Koestenbaum, Keys, and Weirich (2005) suggested that a reason why today’s accountants may have succumbed to unethical practices was that the business schools “often teach that money always comes before ethics” (p.13). Research conducted by several business schools revealed that the labor market for newly graduated accounting students who sought to become CPAs put more demands on the profession due to the unethical acts performed by some public corporations (Allen & Woodland, 2006; Harrington & Moussalli, 2005). Koestenbaum et al. (2005, p. 13) 4 reported that lack of confidence in financial reporting by accountants had been a contributing factor in slowing U.S. capital markets. As a result of the unethical acts performed by some public corporations, the latest government involvement for the economy included new rulings that led to the passing of the Sarbanes-Oxley Act of 2002, which addressed the current unethical behaviors by some corporate leaders and independent accountants. One of the goals of SOX was to restore public confidence in CPAs (Cunningham, 2006; Koestenbaum, et al., 2005). The Act allowed the Securities and Exchange Commission (SEC) to require that publicly traded corporations comply with stringent rules on financial reporting, including the issuing of financial statements. It also enhanced white collar crime penalties and included several other provisions that placed stringent conditions on publicly traded corporations. The first title of the SOX Act established the Public Company Accounting Oversight Board (PCAOB). The PCAOB’s task was to guard the public against unethical behavior of any public accountants that may result in misrepresentation of financial information of publicly traded companies (Coates, 2007; Whitley, 2006). The falsification of financial statements from several accounting firms such as Enron created a lack of public, investor, and economic confidence in CPAs (Rau & Weber, 2004). Consequently, the main purpose of SOX in establishing the PCAOB was to restore public confidence in and improve the ethical perceptions of CPAs (Carmichael, 2004). Although a great deal of research on the study of ethical and moral development among individuals was performed in earlier periods (Kohlberg, 1968; Rest, 1973; Victor & Cullen, 1988), little research has been carried out regarding ethical perceptions of newly graduated accounting students who satisfied the 150 credit rule (Molyneaux, 5 2004). Supporters of the 150 credit rule agreed that the additional credits in the 150 credit accounting curriculum generated a higher quality of students who were better prepared ethically to enter the public sector compared with accounting students of the past who took only 120 credits (Allen & Woodland, 2006). Moreover, Rezaee (1994) suggested that the 150 credit rule improved students’ ethical perceptions and accounting knowledge, allowing accounting majors to exercise due professional care as future CPAs. Accountants have always played an essential role in ensuring that reported financial information remains free from any material misstatements that may change a stakeholder’s decision. If an individual has misled the public by falsifying financial records, thereby departing from generally accepted accounting principles (GAAP) and making an unethical decision, the results can be devastating, potentially causing the fall of companies, the employees, and the economy (Guynn, 2005). Unethical behaviors of some corporate officers and accountants have created situations in which financial statements needed for important decisions lacked objective reporting. Because initially the individual unethical employees did not bear the brunt of the blame for the misperceptions, but rather the companies themselves were held ethically and legally responsible, the ultimate effect of the unethical behavior greatly impacted both the companies and in turn the economy (Guynn, 2005). Referring to how easily the economy and players within it can be affected by unethical behaviors, Guynn (2005, p. 387) provided details that shareholders lost approximately $66 billion in market capitalization in the case of Enron and $177 billion in the case of WorldCom. Throughout 2000, the International Accounting Standard Board (IASB) revisited the global accounting standards as a result of the demise of some 6 publicly traded companies in the United States. The crumpling of some U.S. corporations cost billions in losses and increased risk in the market for many stakeholders (Kaplan, 2007; Tweedie & Seidenstein, 2005). Stakeholders are interested in the views of accounting graduates because they will be future leaders in accounting firms. An inquiry into the ethical perceptions of accounting graduates supported the notion that more education could increase ethical awareness and thereby avert future scandals (Myers, 2003). Problem Statement Publicly traded companies regularly release financial statements, which the public depend upon to be both reliable and relevant. To ensure the reliability and relevance of the statements, companies frequently employ CPAs to validate the companies’ financial information (McFarland, 2005). Without reliable financial information, or even perceived reliable information, users cannot rely on financial statements for making good economic decisions, potentially resulting in widespread economic ramifications (Molyneaux, 2004). During the late 1990s, some corporate executives and their accountants, from companies such as Enron and Andersen, published some misleading financial accounts (Titard, 2004; Esmond-Kiger, 2004). The discovery of Enron's accounting fraud affected not only the company itself, which declared bankruptcy soon after, but also, called into question the trustworthiness of other companies. That led to the dissolution of companies such as Arthur Andersen, which “forever altered the public’s view of the CPA” (Lindberg & Beck, 2004, p. 36), and the public lost faith in the field of accounting as a whole (Rauterkus & Song, 2005). The U.S. government responded to these events by creating the SOX Act, which set new, 7 stricter standards for all U.S. public companies and accounting firms (Brown, Stocks, & Wilder, 2007; Earley & Kelley, 2004; Gene, 2005; McCuaig, 2006; Zabihollah, 2004). To improve the ethical perceptions of new accounting students and prevent such ethical violations, a new curriculum was created to increase the emphasis on ethics in the classroom (Gaa & Thorne, 2004). However, the question was whether the addition of 30 credits mandated by the AICPA actually makes a difference in the ethical practices of newly graduating accountants. Presently, no research is available related to the effect of the 30 additional credits on the ethical perceptions of newly graduated accounting students. To explore this question, a quantitative research method was used, consisting of a cross-sectional survey of newly graduated accounting students and statistical analysis of the results. This population comprised two groups of accounting graduates: (a) those who completed 120 credits, and (b) those who completed the newly mandated 150 credits. Purpose Statement The purpose of this study was to examine if a difference existed between the ethical perceptions of newly graduated accounting students in the 120 credit program and those in the AICPA-mandated 150 credit program in selected Association to Advance Collegiate Schools of Business (AACSB) accredited colleges in New York. The students’ ethical perceptions were measured via a cross-sectional survey using Victor and Cullen’s (1988) Ethical Climate Questionnaire (ECQ), which was based on Kohlberg’s (1969) theory of Cognitive Moral Development. 8 The ECQ has been used for ethical perception studies in the past in developed and developing countries and was found to be a valid and reliable method of determining people’s perceptions on ethics (Cullen, Parboteeah, &Victor, 2003; Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008). It was therefore selected for this study to determine the graduate students’ ethical perceptions. The key independent variable for this study was program type, with two levels: the 120 credit program and the 150 credit program. The dependent variable was the ethical perceptions of the accounting graduates from each of the programs, as measured by the ECQ. The ECQ variables were: self-interest, friendship, personal morality, company profit, team interest, company rules and procedures, efficiency, social responsibility, and laws and professionalism. Information on these dependent variables was derived from the Demographic Questionnaire (DQ), and the ECQ which measures ethical perceptions. The demographic variables were: gender, GPA, knowledge of an ethics course, knowledge of SOX and passing the CPA exam. (While not all demographic variables were used in this particular study—which focused primarily on ethics courses taken, and the passing of the CPA exam—the current knowledge would be complemented by additional studies that look more closely at the other variables.) The ECQ variables were: self-interest, friendship, personal morality, company profit, team interest, company rules and procedures, efficiency, social responsibility, and laws and professionalism. These variables were identified in the literature and had been used by previous researchers in the study of ethics (Cullen, Parboteeah, &Victor, 2003; Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008). Descriptive information about the sample (not used in the analysis) was derived from the 9 Demographic Questionnaire (DQ), including gender, GPA, knowledge of an ethics course, knowledge of the SOX Act, and passing the CPA exam. Using Kohlberg’s (1968) CMD as a foundation, this study explored the present accounting program in post-secondary institutions and its affect on ethical reasoning. Modifications to the educational requirements required that accounting graduates wishing to take the CPA exam have 150 credits, up from the previous requirement of 120 credits (Read, Raghunandan, & Brown, 2003). Incorporated in the 150 credit program was a set of classes that combined financial statement analysis, professional ethics, and professional responsibility (see Appendix B). Jones (2005, p. 48) defined “professional ethics” as “the moral values that a group of people use to control the way they perform a task or use resources.” The AICPA created a “set code of professional conduct for public accountants,” which should be followed by each practicing accountant who has fulfilled the goals of the AICPA’s mandated curriculum change (Read, Raghunandan, & Brown, 2003, p. 31). The AICPA’s goal in expanding the educational requirements by 30 credits was to improve the quality of graduating accounting students, in turn hoping to advance the quality of work carried out by public accountants. As the business environment made adjustments as a result of the unethical decision making of a few accountants, so may the consequences of the demand for ethical accountants restore the public’s opinion in accounting firms and auditing services. This study examined whether a difference existed between the perceptions of ethics among students in the 150 credit accounting program and those in the previous 120 credit program. 10 Significance of the Study Public confidence in the CPA profession diminished following the aftermath of several large corporate scandals (Esmond-Kiger, 2004; Koumbiadis & Okpara, 2008; Lindberg & Beck, 2004; Mason, 1994). As a result, students at several universities took the issues of ethics into their own hands by developing academic honor pledges and codes of conduct (Smith, 2004). Additionally, Congress attempted to restore public confidence in CPAs by enacting the Sarbanes-Oxley Act of 2002, and the AICPA endorsed the 150 credit rule which it hoped would create higher quality students who would later become accounting professionals. The AICPA believed that increasing the number of credit hours from 120 to 150 would help future leaders in accounting be better prepared. An understanding of how the changes by students themselves, by Congress, and by the AICPA impacted the ethical perceptions of accounting graduates could be of significant interest to decision makers in the area of financial information (Orin, 2008). An investigation into the 150 credit rule revealed that little research had been conducted on whether it has had any effect on the ethical perceptions of accounting graduates (Ritter, 2006; Taylor & Rudnick, 2005). Therefore, the contribution of this research could assist in bridging the gap between accounting theory and ethical accounting practice (e.g., preparation of financial statement, tax returns, and other financial reporting), educators, and training and development, and advance knowledge in this area of inquiry in the field of ethics (Krebs, 2006; Jennings, 2004). Significance of the Study on Leadership This study was significant to leadership because it reported on the ethical values of future accountants who will be in positions to lead the way in the area of financial 11 information. Leadership within the accounting profession may be influenced by the changes to the profession instated by Congress and the AICPA to avert future scandals like those that proved detrimental to both the economy and society (Chang & Yen, 2007). Additionally, an inquiry into the ethical perceptions of accounting graduates may be able to show that ethical awareness can be increased with education, and more importantly, it may avert future scandals (Myers, 2003). As accounting graduates become future leaders in the preparation and presentation of financial information, examining the graduates’ perceptions of ethics in light of the recent changes to the accounting curriculum and the profession will inform efforts to improve tomorrow’s ethical leadership. Methods Data for this research were collected from two groups of accounting graduates: (a) those who graduated from the 120 credit program during 2008 and 2009, and (b) those who completed the AICPA 150 credit program during the same years. This program included 30 additional credits that focused on ethics and professional responsibility (See Appendix B). A questionnaire adapted from Kohlberg’s Theory of Moral Development was used to determine the ethical perceptions of accounting graduates. Results will help determine whether the new 150 credit rule provided a significant improvement in students’ perceptions of ethics. Data collected from both groups of accounting graduates were compared to determine whether significant differences existed between the two groups. A quantitative questionnaire was used in this study to explore whether measures of ethical perceptions (dependent variables) of accounting graduates differed by program 12 type, 120 credits versus 150 credits (independent variable). This approach allowed for the assessment or measurement of individual abilities (Creswell, 2005). The questionnaire included Victor and Cullen’s Ethical Climate Questionnaire (ECQ), which was based on Lawrence Kohlberg’s theory of cognitive development. The purpose of the ECQ questionnaire was to find out if there was a difference between the ethical perceptions of the 120 credit program graduates verses the 150 credit program graduates. A cross-sectional analysis was used to “examine current attitudes, beliefs, opinions, or practices” (Creswell, 2005, p. 356). According to Bush and Burns (2005), cross-sectional studies are common in quantitative research and “are one-time measurements, they are often described as snap-shots of the population” (p. 125). In addition, a cross-sectional survey design is often used to “compare two or more educational groups in terms of attitudes, beliefs, opinions, or practices” (Creswell, 2005, p. 356). With this cross-sectional survey design, the study compared the newly graduated accounting students who only completed 120 credits with accounting graduates who completed 150 credits in order to determine whether a significant difference existed in the level of ethics and public responsibility between these two groups of graduates. Questionnaire respondents answered questions based on a Likert scale ranging from 0 to 5, where 0 was completely false and 5 was completely true (See Appendix C). Because the data were based on a numerical scale, a quantitative approach was used to analyze results. Study participants included the two groups of accounting graduates, those from the 120 credit program and those students who completed the newly mandated AICPA 150 credit program at both public universities and private colleges in New York State (NYS). 13 Samples of the two groups of graduates were randomly selected from alumni directories of private and public universities located in NYS. Research Questions Each research question was based on the literature review and was found to be an important contribution to the field of ethics (Cullen, Parboteeah, &Victor, 2003; Dellaportas, 2006; Earley & Kelly, 2004; Koumbiadis & Okpara, 2008). The research questions (RQs) provided a basis for establishing the hypotheses (Hs) for this research: Main RQ: Do accounting graduates in the 150 credit program exhibit significantly different perceptions on ethics than accounting graduates in the 120 credit program? Main H: Ethical perceptions of the two groups of accounting graduates will not be significantly different. RQ1: To what extent was ethical perception (Self-Interest) important to the two groups of accounting graduates? H1: Ethical perceptions (Self-Interest) will not be significantly different between the two groups of accounting graduates. RQ2: To what extent was ethical perception (Company Profit) important to the two groups of accounting graduates? H2: Ethical perceptions (Company Profit) will not be significantly different between the two groups of accounting graduates. RQ3: To what extent was ethical perception (Efficiency) important to the two groups of accounting graduates? 14 H3: Ethical perceptions (Efficiency) will not be significantly different between the two groups of accounting graduates. RQ4: To what extent was ethical perception (Friendship) important to the two groups of accounting graduates? H4: Ethical perceptions (Friendship) will not be significantly different between the two groups of accounting graduates. RQ5: To what extent was ethical perception (Team Interest) important to the two groups of accounting graduates? H5: Ethical perceptions (Team Interest) will not be significantly different between the two the groups of accounting graduates. RQ6: To what extent was ethical perception (Social Responsibility) important to the two groups of accounting graduates? H6: Ethical perceptions (Social Responsibility) will not be significantly different between the two groups of accounting graduates. RQ7: To what extent was ethical perception (Personal Morality) important to the two groups of accounting graduates? H7: Ethical perceptions (Personal Morality) will not be significantly different between the two groups of accounting graduates. RQ8: To what extent was ethical perception (Company Rules) important to the two groups of accounting graduates? H8: Ethical perceptions (Company Rules) will not be significantly different between the groups of accounting graduates. 15 RQ9: To what extent was ethical perception (Laws) important to the two groups of accounting graduates? H9: Ethical perceptions (Laws) will not be significantly different between the two groups of accounting graduates. Theoretical Framework The theoretical framework for this research was a number of germinal studies on ethics and the ethical behavior of accounting graduates. This research made use of ethical models, viewpoints, subjects of significance, and disagreements related to the study of ethical and unethical behaviors. According to Alan and Jack (2008), pressure from clients to trim down accounting firms’ prices yielded a lower quality of work performed by accountants. Moreover, accounting firms’ expenditures were on the rise since the passing of the Sarbanes-Oxley Act of 2002 because the Act’s strict regulations meant companies had to hire more people and spend a larger amount of time than they previously had in order to meet those stringent requirements. Other challenges faced by today’s CPA’s include “an increase in liability risk, standards overload, a lack of growth in the demand for services, and keeping pace with the explosion in technological advances” (Jenkins and Wolf, 2008, p. 46). Ethical Theory Aristotle’s (384-322 BEC) view was that a virtuous life was the most flourishing. In effect, the best human life was one of excellent human activity (Minnameier, 2005). Virtue has always referred to that human excellence which can be realized in distinctively human activity. Virtues were something acquired mainly by habituation. Thus, one 16 became virtuous by doing virtuous acts. Thomas (2008) felt that virtue was a matter of choice, that it was concerned with passion and action. Deontological theorists considered the actions of an individual either good or bad based on universal rules and principles (Leenders & Brugman, 2005). An expression of the theory of deontology originated from the belief: Do unto to others as you would have them do unto you. Deontologists judged the appropriateness of actions of human beings as well as their moral reasoning apart from the consequence of their actions (Kubasek, Brennan, & Browne, 2003). “Deontological ethics systems held that moral right takes precedence over the good and can be evaluated by considerations independent of or in addition to consequences” (Kubasek et al., 2003, p. 209). Kohlberg’s Theory Kohlberg’s (1969) theory on cognitive moral development (CMD) has provided a theoretical foundation for the study of ethics in most modern research. The theory proposed that an individual goes through three hierarchical stages of moral development to resolve an ethical predicament. These were organized into a range of levels— preconventional, conventional, and postconventional or principled—which were then expanded into six stages. The six stages were subsets of the preconventional through postconventional rankings that contained problem-solving strategies and a developmental sequence of moral reasoning (See Appendix A). The CMD theory’s fundamental principle was that people progressed through a series of stages in their moral reasoning (Kohlberg, 1976; Rest, 1973, 1979). The theory helped explain how individuals were able to make basic ethical choices in the world depending on their environment, which was made up of a person’s culture, faith, and 17 schooling. Kohlberg established that ethical reasoning developed near the beginning of people’s lives and expanded progressively as they matured into adulthood based on their ability to reason. Teaching constituted intervention and aroused ethical reasoning as one progressed through a sequence of stages, depicted by Kohlberg’s theory (1969). Views of Ethical Behavior As a result of some corporate debacles, the public has cried out for holding business leaders accountable to a high ethical and moral standard. Coursework on ethics has developed into a requirement in many post-secondary institutions for all accounting majors (Earley & Kelly, 2004). As a consequence of this requirement, one study found that accounting students who were enrolled in an ethics course showed a greater understanding of the repercussions of making unethical decisions, and they demonstrated better moral reasoning and an increase in ethical behavior (Dellaportas, 2006; Malone, 2006; Marnburg, 2003). Schermerhorn, Hunt, and Osborn (2003) argued that ethical behavior and training play an integral part in a thriving society. The study of moral reasoning has several perspectives: 1) The utilitarian view delivered the greatest good to the greatest number of people, implying that the needs of many outweigh the needs of the few. 2) The individualism view considered ethical behavior to be best for an individual’s long-term self-interests. 3) The moral-rights view respected the fundamental rights of all cultures. 4) The justice view suggested that all people should be treated fairly and impartially (p13). 18 Ethics in Post-Secondary Education Accounting graduates entering into the workplace should be cognizant of ethical dilemmas they may encounter with customers, assistants, opponents, and vendors. Examples include illegal kickbacks, falsifying documents, gifts, price fixing, and embezzlement. Due to the debacles of some top corporations involvement in items above, Congress passed the Sarbanes Oxley Act of 2002, which requires adding extra time for the teaching of ethics to accounting students (Dellaportas, 2006; Malone, 2006; Marnburg, 2003). The teaching of ethics to accounting students is still open to debate. Bampton and Maclagan (2005) were pessimistic, stating that “ethics is not a credible academic subject in a business school context; teaching ethics cannot change the values which people have acquired earlier in life, because learning about ethical theory will not ensure moral conduct” (p. 290). According to Bampton and Maclagan, ethics were learned in childhood long before one enters into the classroom. Nevertheless, the authors proposed that “the inclusion of ethics in the accounting curriculum will help practitioners cope with actual ethical dilemmas they may face” (p. 291). Kunsch, Theys, and Brans (2007), however, argued that the goal of incorporating ethical training in classrooms was to enhance one’s awareness of ethical reasoning in general, which may correct students’ future decision making. Clikeman (2003) argued on the importance of educators adding class discussions on ethics to stimulate accounting students’ ethical reasoning abilities. Clikeman’s (2003) research found that accounting education does influence students’ professional attitudes, suggesting that corporate financial scandals may be curtailed in the future by teaching ethical dilemmas to 19 graduating accounting students. Additional findings were that “undergraduate accounting education is successful at instilling in students a sense of responsibility for truthful financial reporting” (p. 80). Clikeman supported the initiative of students enrolling in the150 credit program only if the additional 30 credits included an ethics course (2003). Definitions of Terms Key terms are defined below to articulate the meaning used in this study. Business Ethics: The written or unwritten codes of principles and values that govern one’s decisions and actions within a company. The value-oriented assessment of the moral significance of personal and organizational actions and their consequences on society (Barlas et al., 2003; Dobel, 2005). Deontological: Based on the universal rules and principles, action can be either good or bad (Leenders & Brugman, 2005). Ethics: The “field of inquiry that concerns the actions of people in situations where one’s actions have an effect on the welfare of both others and oneself” (Gaa & Thorne, 2004, p. 4). Ethical Behavior: Morally accepted as doing “good” and what is “right” as opposed to doing something that may be considered “bad” or morally “wrong” in a particular setting (Schermerhorn, Hunt, & Osborn, 2003, p. 13). Ethical behavior is the reflection of both individual and situational influences that individuals encounter in life (Dellaportas, Leung, Cooper, & Jackling, 2006). Ethical Dilemmas: Any situation arising where an individual is at a crossroads and needs to make an individual decision or an organizational one, or possibly both, which is considered unethical (Schermerhorn, Hunt, & Osborn, 2003). 20 Morality: Concern with social practices that define right and wrong. These practices, along with rules and customs, are transmitted within institutions and cultures from one generation to the next (Beauchamp & Bowie, 2004). Sarbanes-Oxley (SOX) Act: Passed by Congress to protect the public from fraudulent accounting practices by corporations. The Act instituted extensive auditing procedures and stricter federal regulation of accountants and corporate governance. Corporate scandals which caused public outrage and a need for reform led to President George W. Bush signing the Act into law on July 30, 2002 (Wegman, 2007). Scope Study participants consisted of 350 accounting graduates listed in the alumni directories of four universities and colleges located in New York State. These participants were taken from two groups of accounting graduates. The first group included only those graduates who had completed 120 credit hours. The second group consisted of graduates who had taken the AICPA’s newly mandated 150 credit program. The study used Victor and Cullen’s Ethical Climate Questionnaire to obtain data from participating graduates. Through research and data collection, the collected information provided details that contributed to the importance of teaching ethics and discussing ethical issues in the classroom. Limitations Irrespective of the important findings of this research, their possible limitations should also be mentioned. The first limitation lies in the need to use need cross-sectional research design instead of longitudinal design. Because the adjustment of ethical 21 perceptions occurs over time, an optimal design would be longitudinal design. However, due to resource limitations, the dimension of time was operationalized as experience and was controlled for statistically. The second limitation was 350 accounting graduates participating in the study were randomly selected from a convenience sample of three nearby institutions. While these students may not be a fair representation of all graduates in the state of New York who graduated in the last two years from each program, accounting courses are the same across all colleges and universities in New York. The third limitation was the fact that all data were collected using self-report questionnaires raising the possibility of responses being affected by a common-method. The fourth limitation was the fact that the findings of this study cannot be generalized to all universities or accounting graduates that was not part of this study. Based on the limitations of the present study, future research should be replicated to validate or refute its findings. This would help to expand the literature and increase our understanding of this topic. This study should also be replicated in other states and at other universities. A quantitative survey method for data collection and analysis was used for this study; future research should use qualitative methods focusing on ethical perceptions to gain a better understanding of how the students' ethical perceptions are developed and... Future research could also use in-depth interviews to further refine the scales for measuring these constructs. Chapter Summary The collapses and scandals of several corporations such as Enron, WorldCom, Sunbeam, Xerox and Tyco in the United States prompted public criticism of business and 22 accounting practices (Dellaportas, Leung, Cooper, & Jackling, 2006). The outcomes of unethical behavior among certified public accountants caused authorities to promote changes to improve the quality of education in the accounting curriculum (Desplaces, Melchar, Beauvais, & Bosco, 2007). Revisions to the accounting curriculum by the AICPA included the addition of the 150 credit rule that required students to complete courses in ethics and professional responsibility. This rule was adopted by the Department of Professional Regulations in 40 U.S. states to improve the level of ethics in accounting graduates (Taylor & Rudnick, 2005). Some raised concerns regarding the effectiveness of this rule and whether there was a real need for the curriculum change by the AICPA (Bierstaker, Howe, & Seol, 2005). The AICPA’s overall goal was to increase the quality of work offered by public accountants. This research reported on the findings of any differences in ethical perceptions between both groups of accounting graduates. The objectives for this study were: (a) to compare ethical perceptions of newly graduated accounting students in both programs after the AICPA’s mandated curriculum change to accounting education in the state of New York; and (b) to bridge the gap in literature, because little research had been conducted on the ethical perceptions of accounting graduates who fulfilled the 120 credit rules versus those who fulfilled the 150 credit rule (Molyneaux, 2004). Raghunandan, William, and Clifford (2003) stated that research findings on the effectiveness of the requirement may impact researchers, educators, and accountants alike when it comes to the effectiveness of the mandated change within the accounting curriculum. To provide a conceptual foundation for this quantitative study, the literature review in Chapter 2 includes a theoretical framework in the study on ethics, beginning 23 with a historical perspective on cognitive moral reasoning, ethical theories, ethical perceptions, business ethics, and ethics in education. 24 CHAPTER 2: REVIEW OF THE LITERATURE This chapter discusses the theoretical foundation for the study and the scholarly research on moral reasoning and the impact on the ethical perceptions of newly graduated accounting students. This chapter additionally discusses important factors in the study of moral reasoning, and expounds on the theories of moral reasoning from the previous chapter. The introduction to this chapter examines the historical perspective on cognitive moral reasoning and serves as a roadmap of the important components of the research questions. This chapter also guides the discussion for the rest of the study, on whether or not 30 extra credit hours in the accounting curriculum benefits accounting graduates’ moral reasoning in making ethical decisions on financial reporting. The review of literature plays a critical role in understanding existing research on the perceptions of ethics and the need for this study on whether a significant difference existed in the ethical perceptions of accounting graduates who were required to participate in the 150 credit program mandated by the AICPA as opposed to earlier accounting graduates who only completed 120 credits. Neuman’s (2003) definition of literature review was “based on the assumption that knowledge accumulates, and that people learn from and build on what others have done” (p. 96). Creswell (2005), building on this definition, viewed the literature review as a written summary of journal articles, books, peer reviews, and other indexed publications on a specific topic that describe the pros and cons of past and current information related to a chosen study. An important asset of this proposal was to present both germinal and current research associated with determining whether the mandated AICPA 30-hour increase in training improved ethics in the field of accounting. A review of relevant literature and anecdotal evidence on this 25 subject has shown that, while a small amount of research has been conducted on this subject, none that can be found on the ethical perceptions of accounting graduates concerning the new changes in the accounting curriculum mandated from the AICPA (Taylor & Rudnick, 2005; Ritter, 2006). The literature review described the range of the AICPA’s activities using subtopics to discuss ethical perceptions of accounting graduates from post-secondary institutions, which prompted an investigation into the mandated AICPA curriculum change. The literature review either supported or repudiated the ethical perceptions of these different groups of graduates. Historical Perspectives Since the discovery of unethical events occurring within companies like Enron and Arthur Andersen, public accountants have been held to higher standards of integrity (Cagle, Glasgo, & Holmes, 2008; Wakefield, 2008). The AICPA requires that accounting graduates were of a good moral character and adhered to a life of honesty and integrity (Deans& Nicholson, 2008; Mohammad, 2007). To ensure that accounting graduates were prepared for the ethical challenges in the profession, the AICPA mandated an extra 30 credits including ethics studies to be added to their curriculum. Empirical research supports the idea that educational instruction in ethics may increase ethical awareness for accounting students (Chang, 2007; Dellaportas, 2006; Hurtt & Thomas, 2008; Swanson, 2005). In light of the several ethical lapses of some key public figures over the past decade, this issue of ethical awareness is of vast importance. Ethical lapses may be averted in the future with the inclusion of educational instruction in ethics, through case studies, moral dilemmas, and practice simulations on issues such as the illegal spying at the Watergate Hotel during the 1970s; insider trading in the 1980s, and 26 the savings and loans debacle; the impeachment process in the 1990s of President Bill Clinton over the Lewinski affair, and finally the fraud and subsequent failure of Arthur Anderson, Enron, Global Crossing, WorldCom, and HIH (Longenecker, Moore, Petty, Palich, & McKinney, 2006). Ethics is a difficult to define and much debated subject. Can 30 additional credits within the accounting curriculum influence the ethical perceptions of accounting students? Longenecker et al. (2006) argued persuasively that “ethical perceptions and behavior are rooted in differences between individuals, variations in their organizational settings, and the interplay between the two” (p. 170). Ruth (2008) felt that research in ethics may be a bit mystifying and does not ensure that people understand ethical behaviors. As suggested by Lewis, “defining ethics is like nailing Jell-O to the wall” (1985, p. 337). Aristotle’s ethical views were not so much on principles but rather on virtue and a good moral character. Hartman (2008) noted that Aristotle believed that “correct views about ethics are compatible with common sense and in the end, finding a truly good character is rare because rationality is rare” (p. 314). Conversely, Socrates taught his students that traditional morality was derived from one’s own belief system, rather than any one correct way of establishing what is ethically right or wrong. Socrates likewise determined that patterns of moral reasoning exist in one’s environment and that these patterns lay the foundation for certain virtues. Socrates felt that the improvement of the human soul relied on humans behaving ethically (Hartman, 2008). 27 Cognitive Moral Reasoning Most scholarly research in ethics has recognized Kohlberg’s (1969) theory on Cognitive Moral Development (CMD). CMD is explained by moral reasoning abilities, which are based on ethical behavior as defined through Kohlberg’s six stages. Kohlberg extended Piaget’s (1932) work on children’s moral development. Kohlberg was intrigued as to how individuals morally thought and reasoned, as opposed to the moral implications of an individual’s actions. Kohlberg’s theory of CMD with its stages of moral progression has been used extensively throughout the years by many ethics researchers to explore and understand how individuals morally reason (Jones, Massey, & Thorne, 2003). Jones, Massey, and Thorne, showed that a “relationship between a variety of individual characteristics and ethical development” was important to understanding moral development (2003, p. 92). Kohlberg’s (1969) theory of CMD was examined in a “series of stages that begin in adolescence and extend through adulthood, under the headings of preconventional, conventional, and postconventional” (p. 39). Each of these was divided into 2 stages (See Appendix A). Kohlberg argued that individuals were able to and capable of making ethical decisions based upon their surroundings. Kohlberg’s work presented the case that an individual’s ethical behavior is brought about through moral reasoning, which may develop as an individual goes through a series of growth stages from adolescence to adulthood. Kohlberg’s CMD model comprised three levels, with two stages for each level. Rest (1986) noted that Kohlberg’s six stages were viewed as forming a sequence in which attainment of an advanced stage depended on the attainment of each of the preceding 28 stages (p. 226). Victor and Cullen’s ethical climates suggested “that individuals’ moral reasoning skills (judgment on how moral dilemmas ought to be resolved) evolve over time, reflecting three distinct categories of moral judgment processes, which [Kohlberg] termed preconventional, conventional, and postconventional” (p.185-186). Kohlberg’s six stages of moral maturity are found in Appendix A. Kohlberg (1969) explained that many individuals do not progress past stage four of the moral development process (See Appendix A), theorizing that many people do not advance through the three levels of cognitive moral development. Individuals who progressed through the third level used their moral reasoning that was based on principles and values, even when it is not popular or compatible with universal law (Trevino, 1986). Kohlberg’s theory was important to this research, because graduating accounting students advanced through the stages in the accounting curriculum from the time they were freshmen to when they graduated as seniors (Clikeman, 2003; Earley & Kelly, 2004; Jones, Massey, & Thorne, 2003). Opposing Views Trevino (1986) suggested that Kohlberg’s research excessively emphasized cognition and ignored actual behavior (i.e., if the individual acts in an amoral manner), and developed an alternative to Kohlberg’s CMD model. Trevino’s (1986) model proposed that cognition and action are related because people have a drive for consistency between their thoughts and actions (1986, p. 609). This model appeared to be more practical than Kohlberg’s model, because Trevino’s model concentrated on an individual’s personal dealings and ethical dilemmas, which were affected by moral reasoning and ethical behavior. 29 Gilligan (2004) criticized and challenged Kohlberg’s CMD theory for not allowing the use of real moral dilemmas. Gilligan noted that Kohlberg’s theory focused “on hypothetical rather than real dilemmas sharpened by awareness of the disparity between the assumptions governing research methods and the realities of people's lives” (Gilligan, 2004, p. 132). Gilligan also argued that Kohlberg’s theory had limitations on the question of fairness and relationships and that Kohlberg excluded women from his research. Gilligan stated, “my question was not how well can women do when measured by standards derived from studying men, but rather, what had been lost by leaving out women?” (Gilligan, 2004, p. 132). Contributions to Kohlberg’s Theory Defining Issues Test Contributing to Kohlberg’s theory, James Rest (1979) constructed the Defining Issues Test (DIT) as a reliable instrument to examine moral judgment in harmony with the stages of Kohlberg’s theory of CMD by the use of moral dilemmas. The DIT was an enhancement to the protracted interviewing process to Kohlberg’s instrument (Rest, Narvaez, Bebeau, & Thoma, 1999). Rest’s DIT has been used widely among scholars in academia to measure changes in ethical judgment before and after educational interventions (West, Pickard, Ravenscroft, & Shrader 2004, p. 174). Rest et al. (1999) showed a direct relationship between the outcomes of their instrument and the behaviors of individuals as important to the reliability of their instrument, because over 60 studies showed a positive correlation between DIT scores and pro-social behavior in laboratory and non-laboratory studies, in self-reports and in ratings by others (Rest, et al., 1999, p. 81). Rest’s theory strengthened Kohlberg’s CMD by using cognition and introducing 30 ethical decision making through moral judgments. Moreover, Rest’s theory was used commonly to “indicate that progress in developing ethical attitudes or learning has occurred in educational settings,” which supports the usefulness of the 150 credit program instated by the AICPA (West, et al., 2004, p. 175). Several past ethics studies on accounting students used scores from derivatives of Rest’s DIT theory to evaluate the progression of moral development along with Victor and Cullen’s Ethical Climate, which has been described as “the shared perceptions of what is ethically correct behavior and how ethical issues should be handled” (Abdolmohammadi & Baker, 2006; Bailey, Phillips, & Scofield, 2005; Earley & Kelly, 2004; Victor & Cullen, 1987, p. 51-52). Victor and Cullen’s Ethical Climate Based on the foundation of Kohlberg’s CMD theory, Victor and Cullen (1988) fashioned the Ethical Climate Questionnaire (ECQ) for the examination of people’s moral reasoning in relation to their work climate. The ECQ—a two-dimensional model designed to identify a person’s ethical views, ethical actions, ethical proceedings, and ethical dealings related to their work environment—was the first dimension in the model, the ethical criterion. The second dimension was the loci of analysis. The ethical criterion was founded on Kohlberg’s CMD. Victor and Cullen (1988) viewed the “ethical climate as the shared perceptions of what is ethically correct behavior and how ethical issues should be handled’’ (Victor & Cullen, 1987, p. 52). Referring to the Enron case, Earley and Kelly (2004) said that “negative aspects of the ethical climate or culture within Andersen played a pivotal role in its demise” (p. 12). Victor and Cullen’s work revealed how people within an 31 organization play an important part in the study of ethical perceptions (Barnett & Schubert, 2002). According to Chan & Leung (2006), further proof of an organization’s ability to sustain an ethical climate resulted in high retention rate, high productivity, and high employee morale. The characteristics of Victor and Cullen’s ECQ regarding the ethical perceptions of individuals covered all the segments of an organization at a macro level instead of concentrating on just one area in the organization (Victor & Cullen, 1988). However, some have argued that individuals may view an organization’s climate at the micro-level when it comes to moral decision making (Gül Selin & Ayse Begüm, 2008). Consequently, Victor and Cullen (1988) designed the ECQ based on how an individual perceives the ethical climate types within their organization (Wyld & Jones, 1997). Victor and Cullen’s research used the Ethical Climate Questionnaire (ECQ) (Appendix C) as the instrument to evaluate survey participants’ ethical perceptions based on their work climate. The ECQ was constructed as a two-dimensional instrument designed to identify the ethical climate types in an organization. The first dimension was the ethical criterion, which was in alignment with Kohlberg’s stages of moral development: egoism (self-interest), benevolence (joint interests), and principle or deontology (adhering to a principle), which is an “adherence to universal standards and beliefs” (Gül Selin & Ayse Begüm, 2008, p. 959). The second dimension suggested each ethical criterion is related to self or oneself (individual), groups within the organization (local), and the external portion of an organization (cosmopolitan), which links to the locus of analysis, shown in Table 1. Victor and Cullen’s locus of analysis was stimulated 32 by the work of Merton (1957) on referent groups. Victor and Cullen (1988) expounded on the locus of analysis in their matrix: Locus of analysis is a referent group identifying the source of moral reasoning used for applying ethical criteria to organizational decisions and/or the limits on what would be considered in ethical analyses of organizational decisions (Victor & Cullen 1988, p.105-106). Table 1 Theoretical Ethical Climate Types Locus of Analysis Ethical Criterion Egoism Benevolence Principle Individual Local Cosmopolitan Self-Interest Company Profit Efficiency Friendship Team-Interest Social Responsibility Personal Morality Rules Laws Source: Victor and Cullen (1988, p. 104). From “Matching Ethical Work Climate to In-role and Extra-role Behaviors in a Collectivist Work Setting,” by A. S. M. Leung, 2008, Journal of Business Ethics, 79, p. 43-55. Copyrighted 1993 by the American Psychological Association with permission of the author. Victor and Cullen (1987, 1988) identified nine ethical climates types. These climates provided the established practices and procedures for an ethical climate, for which individual ethical perceptions were considered. Based on the former work by Victor and Cullen (1988), Martin and Cullen (2006) added a different dimension to the ethical climate. Martin and Cullen (2006) stated that meta-analysis of the literature relating to the ethical climate revealed several key variables related to ethical climates including work satisfaction. Martin and Cullen’s (2006) research showed “three bases or 33 criteria of moral judgment: egoism, benevolence, and principle” (as cited in Parboteeah & Kapp, 2008, p. 517), which provided the framework for the three important climates. The three ethical criteria that established the Ethical Climate Questionnaire (ECQ) used in this research are discussed below. Egoism The first element of the ethical criterion expounded on an egoism environment, where the pursuit of egotism was reinforced by an organizational culture (Martin and Cullen, 2006). The second element of the ethical criterion benevolence environment was considered a societal group that was supported by organizational culture. Similarly, the third element of the ethical criterion principled environment was also supported by organizational culture that was independent of situational outcomes. The second dimension of Victor and Cullen’s (1987) model revealed the three loci of analysis (individual, local, and cosmopolitan), which differentiated the three ethical climate types (egoism, benevolence, and principled) found in an organization. The loci of analysis comprised three elements: individual, local, and cosmopolitan (See Table 1). Victor and Cullen (1988) stated that, “locus of analysis is a referent group identifying the source of moral reasoning used for applying ethical criteria to organizational decisions and/or the limits on what would be considered in ethical analyses of organizational decisions” (p. 105-106). Theorists on ethical egoism have suggested that the root of all moral decisionmaking should serve the best interest of self. The rule for ethical egoism was that “one ought to do whatever is in one's own best interests” (Jennings, 2004, p. 5). That statement led some to perceive ethical theorists on egoism as selfish individuals who only 34 serve their own best interests. In fact, the case was quite the opposite, and ethical theorists on egoism believed that the interest of others was a benefit to the interest of self (Jennings, 2004). Thomas (1993) debated the belief that the ethical egoist could make decisions about the actions of one’s ego without the interests of others. The egoist required validation from others to withstand constructive self-assessments (Thomas, 1993). The first element, individual, in the loci of analysis referred to how one reasoned morally. The second element, local, referred to an individual’s ethical perception that was deep-rooted to societal groups. The third element, cosmopolitan, referred to an individual’s ethical perception based on the outside of one’s immediate group in the organization (Victor & Cullen, 1988). Victor and Cullen’s (1988) model was constructed into a matrix where the ethical criterion crossed with loci of analyses created nine possible types of climates for each of the ethical criteria: egoistic, benevolent, and principled (Cullen, Parboteeah, & Victor, 2003). Building on the research of Victor and Cullen’s egoism, Bagnall (2006) exemplified the importance of commitment as a lifestyle to learning. Bagnall stated that “an expression of ethical egoism is picked up in the lifelong learning ethical commitment to oneself and one’s cultural inheritance” (p. 266). Additionally, empirical research has shown the importance of culture influencing the ethical perceptions of an individual (Venezia, 2005). Victor and Cullen (1987) provided examples that assist in understanding each of these cells as follows: 35 An egoistic-individual climate encourages individuals to make ethical decisions mostly in their self-interest. The egoistic-individual climate can be found in car dealerships or brokerage firms where decisions are typically self-interested. In contrast, the principled cosmopolitan type refers to ethical decisions made based on laws or professional codes. The principled cosmopolitan climate may be present in public accounting firms where the organizational climate supports ethical decision making based mostly on professional codes governing the profession (cited in Parboteeah & Kapp, 2008, p. 518). Benevolence Victor and Cullen’s (1988) second criterion, benevolence, focused on an individual’s ethical perception of how they viewed others in the organization rather than themselves. An organization where individuals were mindful of others produced a caring climate, demonstrated by the ethical perceptions of individuals towards the good of others and not themselves. Thus, the benefit was extended to many in the organization as a result of individuals looking out for the welfare of others (Parboteeah et al., 2005). An organization that has fostered individual employees who seek the good in fellow employees created a positive effect on company morale and commitment in that organization. Research has demonstrated that “organizational commitment should be higher in organizations with principle- or benevolence-based climates than in organizations with egoism-based climates” (Gül Selin et al., 2008, p. 960). The criterion benevolence originated in utilitarian theory, which states that the actions of individuals that yield to the least harm of the group may also lead to the utmost benefit of the group and may be morally right (Malone, 2006). The emphasis on the 36 utilitarian theory was found in the conduct of an individual or a business that brought ultimate happiness to the society it operated (Kubasek et al., 2003). The foundation of this theory was the major goal of bringing happiness to an organization. The outcomes would be profitability and a strong public spirit. One limitation of this theory was that an individual who committed an illegal act or decision was allowable if the illegal act or decision was for the good of the organization. Major supporters of this model were Jeremy Bentham (1748-1832), John Stuart Mill (1806-1873), and G. E. Moore (1873-1958). The utilitarian theory viewed morals as (a) a means to improve society, and (b) the capability to offer good decision-making. The fundamental principle of utilitarianism was “always act in the way that will produce the greatest overall amount of good in the world” (Hinman, 2002, p. 6). In today’s business world, a common occurrence is that individuals are confronted with objectionable dealings with their employer or fellow employees that may border on unethical decision making. The theory on utilitarianism did not characterize who was liable for the objectionable proceedings. Jeremy Bentham (1748-1832), a proponent of utilitarianism, held that to widen worldly gratification was a need that subsided within the world. The focus of Jeremy Bentham’s analysis was largely on the actions of an individual and not on their intentions. Moreover, the morals of an individual’s action could simply be understood subsequent to final outcome. This supported the theory’s premise that one’s behavior is characterized for the most part as “intrinsic value to humanity” (George, 2008, p. 293). 37 Principle The third criterion was embedded in the theory of deontology. The theory of deontology embraced two major components: the first component required that laws and rules be universal; the second required that individuals were treated ethically and honestly. Individual people should not receive treatment as a means to an end only. Individuals provide a service as well as a purpose to an organization and should be treated with respect (Baron, 2006). Obedience to laws and rules were important to public accountants and was a vital aspect to the ethical criteria found in Victor and Cullen’s (1988) work. Proponents of deontology considered individual actions as either good or bad and based on adherence to laws and rules (Leenders & Brugman, 2005). Deontological theory has established a set of guidelines based on the golden rule: “Do unto to others as you would have them do unto you.” Apart from the actions of an individual, absolute deontologists supported the ethical reasoning of one’s actions as a basis in their theory (Kubasek, Brennan, & Browne, 2003). One of the principles of deontological theory was Divine Command, which assumed ethical works to be an order by a divine power. A universal principle, Monistic Deontology, described a behavior to be either right or wrong as a basis in other principles (Hinman, 2002). A deontological ethics system was based on the belief that morality drove ethical decisions. Ethical decisions were the moral basis that could be made autonomously or as a result of an outcome of one’s action. The rationale for ethical decision making was based on how moral an individual was (Trevino, Weaver, & Reynolds, 2006). 38 Deontological ethics takes notice to as to what goes into the results of an action instead of looking at the results attained by that action (Baron, 2006). The process or procedure by which an individual can determine the best approach to resolving a moral dilemma is somewhat ambiguous. Most processes and procedures usually follow a protocol that may lack sincerity on behalf of the individual. A few of the followed processes and procedures that some considered moral obligations of the past may be outdated or not appropriate to a present set of circumstances (Hinman, 2002). “Deontological ethics systems held that moral right took precedence over the good and could be evaluated by considerations independent of or in addition to consequences” (Kubasek et al., 2003, p. 209). Consequently, following a defined set of processes or procedures may not have influenced the way one morally reasoned. Intervention through educational instruction stimulated ethical reasoning in some individuals and played a significant role in moral reasoning rather than pursuing a set of processes and procedures from such intervention. In summary, Victor and Cullen’s model included three ethical criteria: egoism, benevolence, and principle. These ethical criteria were in alignment with Kohlberg’s (1968) pre-conventional, conventional, and post-conventional theory on cognitive moral development (Gilliland, Steiner, & Skarlicki, 2007). The second dimension in Victor and Cullen’s model consisted of the three loci of analysis: individual, local, and cosmopolitan (See Table 1). Locus of Analysis Victor and Cullen (1988) described their model’s locus of analysis as a “referent group identifying the source of moral reasoning used for applying ethical criteria to 39 organizational decisions” (p. 105). The first loci of analysis (individual), referred to one’s own moral reasoning. The second loci of analysis (group) referred to one’s own moral reasoning concerning others in the organization. The third loci of analysis (cosmopolitan) referred to moral reasoning that focused on the external surroundings of an organization (Victor & Cullen, 1988). Gilliland, Steiner, and Skarlicki (2007) explained that combining these three loci of analysis and three ethical criteria dimensions gives rise to nine different theoretical climate types (p. 187). Presented below (Table 2) are the nine different theoretical climate types used in this study to determine whether the 150 credit course was an effective measure for improving levels of ethics and public responsibility in accounting graduates. Table 2 Ethical Climate Types of the Locus of Analysis Locus of Analysis Ethical Criterion Egoism (E) Benevolence (B) Principle (P) Individual (I) Local (L) Cosmopolitan (C) Self-Interest (EI) Company Profit (EL) Efficiency (EC) Friendship (BI) Team-Interest (BL) Social Responsibility (BC) Personal Morality (PI) Rules (PL) Laws (PC) Source: Victor and Cullen (1988, p. 104). From “Matching Ethical Work Climate to In-role and Extra-role Behaviors in a Collectivist Work Setting,” by A. S. M. Leung, 2008, Journal of Business Ethics, 79, p. 43-55. Copyrighted 1993 by the American Psychological Association with permission of the author. 40 Morality Piaget’s research on morality, the first locus, was portrayed in a full obedience to rules and laws (Kretchmar, 2008). As an individual developed and matured, “a person assumes that moral judgments are so self-evident that no justification is needed beyond simply stating the rule that has been broken” (Thomas, 1997, p. 59). Yet, catastrophic events unveiled a decline in morality and ethical standards of public companies (Dellaportas, 2006; Esmond-Kiger, 2004). Jones (2005) stated that morality is a set of values allowing a person to determine whether an action was right or wrong. Kubasek, Brennan and Browne (2003) define ethics as the science of morality that also includes “the study of good and bad behavior” (p. 230). Kubasek et al. took that definition a step further to describe business ethics as the study of the moral practices of businesses (2003). Business ethics can be complex and confusing, because no right or wrong answers exist (Kubasek et al.). Organizational ethics is rooted in a firm’s understanding of its deeply held identity, beliefs, and values (Kouzes & Posner, 2003). Societal, professional, and individual ethics provide the principal sources of organizational ethical values (Jones, 2005). Business ethics refers to ethical behavior of a specific business, whereas other organizational ethics encompass ethical interactions of people inside and outside the business environment (Watkins & Iyer, 2006). Mitroff (2006) argued that traditionally, morality had no place in business as modern management concepts advocated that the business of an organization is business. In other words, the business leaders’ sole objectives were to maximize the wealth of their shareholders at any cost, therefore the business leaders had the license to compromise on 41 ethical and environmental issues (Wren, 2004). The “cost to other stakeholders, consumers, competitors, environment and the general public at large was never the concern of the business leaders” (Mitroff, 2006 p. 19). Mitroff (2006) also emphasized that “this approach to business is gradually coming under criticism” (p. 20). The contextual factors aimed at understanding the working relationship of ethics among future accountants and businesses. Unethical practices of some accountants affected businesses in several ways. First, consumers tended to shy away from products and services from organizations with unethical reputations (Babin, Griffin, & Boles 2004; Gilbert, 2003; Roman & Ruiz, 2005). This affected current and future business, which diminished the value of those organizations. Second, some unethical practices were also illegal or fraudulent, consequently increasing the organization’s financial risk, liability, and costs (Belski, Beams, & Brozovsky, 2008; Neese et al., 2005). Third, unethical climate had a pervasive effect on employees in terms of increased workplace stress, lower job satisfaction, lower performance, and higher turnover (Bell & Hughes-Jones, 2008; Weeks & Nantel, 2004). However, since the implementation of the 150 credit rule, which required students to complete 150 credit hours in order to qualify to take the Certified Public Accountant (CPA) exam, the lack of research has raised concerns regarding the effectiveness and need of a curriculum change by the AICPA, especially when it came to improving the moral development of accounting graduates (Bernardi, et al., 2004; Bierstaker, Howe, & Seol, 2005). Whether the AICPA’s overall goal with this rule—to increase the quality of work offered by public accountants—was effective still remained to be seen (Allen & Woodland, 2006). 42 Self-Values The AICPA’s rule opened the door for researchers to give particular attention to an individual’s value system in the study of ethics and moral reasoning in decision making within an organization (Baglione & Zimmener, 2007; D'Aquila et al., 2004; Grojean et al., 2004). It was important for accounting graduates to demonstrate a set of values, ethics, and moral judgment when it came to making decisions within an organization, because they were faced with new challenges within the profession as a result of the recent debacles of some large corporations that made the public lose their trust in accountants (Puxty, Sikka, & Willmott, 1994). According to Felton, Dimnik, and Bay (2008) “the function accounting fulfills in the economic system is contingent on the profession’s ability to maintain the perception of high ethical standards” (p. 217). Efficiency Teaching Ethics The focus of teaching business ethics to undergraduate students has become a major issue of discussion in academics. Ritter (2006) argued that both theory and empirical research on ethics created some disagreement. Ritter suggested that for those individuals with a rooted ethical upbringing prior to college, an ethics curriculum was effective in complementing his or her existing schema. In contrast, for individuals lacking experience in the ethical components of decision making, the level of ethics training in business schools was not considered adequate to make ethics a “habit” (p. 155). The Association to Advance Collegiate Schools of Business (AACSB) and Academy of Management were representative of the groups that created the strategies and ensured the important value of ethics was taught to students. According to Ritter 43 (2006), some scholars argued that ethics could not be taught and believed that the development of one’s character has already occurred before entering college. Some scholars argued that one college class or even a series of classes was not enough to change one’s character of earlier life’s teachings. McDonald (2004) believed that “most business schools do not put forth an effort to make ethical consideration automatic in decision making” (p. 372). Based on requirements that students must complete 120 credits to graduate, 45 hours are spent in class for a 3 credit course during one semester, not including outside-of-class preparation. Shenkir (1990) explained the number of hours would be needed to focus on ethics in order to create ethical behavior in students of all backgrounds is unknown. Some scholars believed that if students were given enough time in ethics classes, their ethical substructures would be changed and could be primed for future businessrelated decisions. Teaching ethics has not been without criticisms in an accounting environment. Bampton and Maclagan (2005) reported that “ethics is not a credible academic subject in a business school context; teaching ethics cannot change the values which people have acquired earlier in life, because learning about ethical theory will not ensure moral conduct” (p. 290). Bampton and Maclagan (2005) nevertheless suggested that “the inclusion of ethics in the accounting curriculum will help practitioners cope with actual ethical dilemmas they may face” (p. 291). The aim of including ethics in classrooms for accounting majors was to heighten the awareness of ethics and social responsibility, which could have altered students’ decision making as some of these individual graduates moved on to become leaders in the financial world. 44 Social Responsibility Theorists on social responsibility asserted that firms must make their business decisions concerning the interest of the people they serve in society and not just their own interests (Kubasek, Brennan, & Browne, 2003). The unethical actions of Arthur Andersen, one of the leading auditing agencies, along with the unethical actions of other major organizations, prompted government intervention. The Sarbanes-Oxley Act (SOX), mandated by Congress in 2002, ensured that organizations that operate accounting firms must, under the law, remain ethical while operating and report accordingly to the standards of SOX. Compliance with SOX raised companies’ costs for audits and financial consulting because they had to hire more people to take care of the filing (both electronic and physical), and because they lost seasoned employees due to frustration with dealing with all the new rules, all leading to general loss of profits (Cocheo, 2005). Leahy (2003) expounded on the amount of time it took for companies to comply with the new regulations laid out by Congress under the SOX Act of 2002. Leahy said, “It only takes a moment to warm up the shredder, but it can take a lifetime to repair the damage done by a corporation that ignores the rules” (2003, p. 17). In fact, a corporation that has ignored the rules ruins more than their own reputation. They also potentially ruin the reputation of other accounting firms. In the long run, it is better to be aboveboard from the start. According to Kouzes and Posner (2003), “organizations look for and admire leaders who are honest, forward-looking, inspiring and competent” (p. 251). Leadership is highly important. It is the process where an individual persuades others to follow his or her lead to get objectives 45 accomplished. In fact, Gilkey (1999) concluded that “leadership is the ability to inspire, empower, and exert broad influence” (p. 100; Gardner, 1990). The leaders of Arthur Andersen, however, persuaded their subordinates to destroy documents based on existing company policy even though the act may be construed as unethical. Based on the analysis of Andersen’s case, the courts decided that Andersen exerted its influence over its employees to perform an unethical act. Today, this kind of unethical leadership has been bound to lose business rather than attract it and to have had a negative effect on society by damaging the corporate image and reputation (Taylor & Rudnick, 2005; Ritter, 2006). Friendship and Team Interest Many scholars have further suggested that friendship and teamwork is the process of using both the heart and mind, using wisdom and knowledge. Leaders who maintained an ethical character helped to guide managers and co-workers through adversity, hardship, disruption, uncertainty, transformation, recovery, new beginnings, disruption, and other significant challenges (Kouzes & Posner, 2003). Ethics is the science of morality; a set of moral values and principles that should govern friendship and teams. Jones (2005) defined morality as principles that allowed an individual to judge if an action of another individual within the team was right or wrong, whereas Kubasek, Brennan and Browne (2003) concluded that ethics consisted of determining what is considered to be good or bad behavior among leaders. Ethics, morality, and ethical perception all fall under a very broad spectrum. Ethical values symbolize an individual’s desire for friendship and a willingness to belong to a team that shares the same values. When ethical values are applied in a business 46 organization where individuals obey laws and rules, then the creation of an ethical organization may progress (Jones, 2005). Business Ethics and Legislation and Rules De George (2005) also spoke of the dilemma surrounding the specific identification of business ethics and identified three to four root disciplines which provide sustenance to how companies handle financial decisions ethically. Given that defining ethics and morality is so difficult, it is difficult to know exactly how to teach ethics and morality to others. According to De George, the discipline of business ethics in organizations originated in the early 1970s, and business ethics became a more commonly used term after that time. The early origins of the field could be traced to the disciplines of religion (morality), philosophy, and law (De George, 2005). Baron (2006) wrote that ethics referred to issues that existed in the performance of business functions, and that business ethics referred to individuals who act as owners, managers, employees, or any other agent of a business. Effectively applying ethics to decision making has been known to be challenging to business executives. Having a model that can be used to make decisions could help guide the process of making decisions to ensure that the factors needed to make a decision were taken into consideration. While one could hope that a model would always lead to great decisions, having a model should at least lead to minimizing the bad decisions. Beauchamp and Bowie (2004) claimed that 75% of 1,500 of America’s largest corporations had made bad decisions for insider loans on the basis of partiality. In 20022003, this mass partiality backfired and many accountants and companies either “forgave” or “pardoned” (p. 27) loans and wrote off millions of dollars. Loans presented 47 to several large companies—Lucent, Mattel, Tyco, Webvan, and Microsoft—became famous cases. These scandals, among others, were a large part of the reason the Securities and Exchange Commission (SEC) introduced the 2002 Sarbanes-Oxley (SOX) Act to establish an independent and impartial oversight system to restore the public’s confidence in publicly traded companies. To those who broke the rules, the 2002 Sarbanes-Oxley (SOX) Act added legislative measures to restore accountability. The purpose of the Public Company Accounting Oversight Board (PCAOB) under the auspices of SOX was to protect investors and restore the public’s confidence in certified public accountants (CPAs). PCAOB’s mission was to assign auditors who were CPAs to investigate unethical practices of public companies and ensure that unethical behaviors were corrected imminently (Coates, 2007). Leahy (2003), with regard to unethical behaviors among corporate officers and accountants, stated that consequences would be appropriate “by enacting a law that contained not only regulatory tools, but also tough punishment for wrongdoers” (p. 15). This new legislation from the “U.S. Congress sent a clear message to corporate executives like those at Enron—Don’t do it” (Leahy, 2003, p. 16). According to Mokhiber (2005), the United States Supreme Court recorded that in the case of Andersen, “the jury instructions failed to convey properly the elements of the corrupt persuasion conviction” (p. 46). In today’s environment, after the development of SOX, “Andersen would be charged under several of the expanded obstruction provisions, and because the agency destroyed Enron documents, charges would fall outside expectable document retention practices” (McFarland, 2005, p. 4). 48 The SOX Act also created new felony charges for destroying, falsifying, or altering a record with the intent to obstruct an investigation. Special felony charges were introduced for auditors of publicly traded companies; “documents must be retained for five years that are generated or discovered during an audit, including opinions, conclusions, or financial analysis” (Leahy, 2003, p. 17). All this was the result of the negative impact from the Andersen and Enron scandal that resulted in a tremendous loss by other clients of Andersen that exceeded 31 million dollars (Rauterkus & Song, 2005). The most profound result of the Andersen/Enron scandals and the resulting Sarbanes-Oxley Act was its positive effect on auditors (Millman, 2005). Millman (2005) emphasized that rules, guidance, and standards from the SEC and the PCAOB have more than what one Chief Financial Officer (CFO) had called “a chilling effect on the relationship between auditors and management” (p 23). These new rules, laws, and regulations caused organizations to spend more for audits and financial consulting, in that they were forced to hire more people to handle the electronic and physical filing, and deal with the loss of seasoned employees due to frustration with all the new rules (Melé, 2005). Organizations were reported as receiving fewer profits due to higher operating expenses (Cocheo, 2005). All these new hires would have no meaning, however, if the new employees did not have a good sense of ethics. But could an extra 30 credits actually instill students with a higher level of ethics? Company Rules and Procedures Instituting standards for ethical behavior and moral values has been the responsibility of organizational leaders. These standards have guided the behavior and decision making of followers (Brown, Trevino, & Harrison, 2005). Stultz (2005) stated 49 that a leader’s purpose was to inform customers and stakeholders about following rules, and allocate resources to social causes (Stultz, 2005). Ethics have long been part of an organization’s culture, and top management has had an impact on ethics (Haas, 2005). Ethical managers helped to foster an ethical culture, whereas unethical managers made an ethical culture difficult to establish. An organization’s culture could be designed to encourage ethical behavior. Employees looked to their leaders to provide direction and facilitate the processes that enabled them to achieve their objectives (Zaccaro & Klimoski, 2001). According to Hurt (2006), the Mission Statement of a company directed an organization and its employees toward ethical decisions. Jones (2005) argued that unethical decisions damaged the mission and reputation of the organization and its stakeholders. With the recent upsurge of high profile scandals in organizations, academics and practitioners were attempting to identify and understand the cause and effect of the ethical lapses among top leaders and the profiles of the people involved. Ethics were established by a “framework of laws and practices that are commonly accepted in society, defining good and bad behavior. Unethical behavior is frequently subject to civil or criminal penalty and public censure” (DeCenzo, 1997, p. 45). In addition, unethical decisions hurt stakeholders in a manner that was unacceptable in an organization’s environment (Jones, 2005). Ethical managers fostered an ethical organization culture that was designed to encourage similar ethical behavior from oversight committees and employees. An ethical organization culture included authority relationships, rules, and an ethical mission statement that guided the organization. 50 Ethics and Accounting Curriculum This section discusses the relevance of ethics in the accounting curriculum. According to Dellaportas (2006), accounting students reasoned more ethically through intervention of a course dedicated to accounting ethics. Results of Dellaportas’s study revealed that through intervention, accounting students responded positively to moral reasoning using a series of dilemma questions based on Kohlberg’s theory of Cognitive Moral Development (CMD). The awareness of moral reasoning was likely stimulated by curriculum and was therefore encouraged. Several theories of CMD have been presented, which identified moral reasoning as a progression through maturity that was connected in many ways to added characteristics of human development from adolescence to adulthood. Training and development, according to Fredrich, Cherry, King, and Guo (2005), “is often seen as a frill in many U.S. organizations. Studies of firms located in the United States consistently provide evidence of inadequate levels of training” (p 30). Pfeffer and Veiga (1999) stated that “training is an essential component of high performance work systems, these systems rely on front-line employee skills and initiate changes in work methods, and to take responsibility for quality” (p. 43). Clikeman’s (2003) extensive research in ethics discussed the significance of accounting professors to encourage the teaching of ethical standards to accounting students. Clikeman (2003) argued that accounting students with strong ethics may work harder to avoid potential embarrassment to the profession of accounting. Clikeman’s research suggested that “accounting education does influence students’ professional attitudes” (p. 80.), based on work carried out in 2000 with a sample of 164 accounting 51 majors registered at Southern Methodist University. The results of the study suggested that undergraduate accounting education is effective in inspiring responsible financial reporting that is unbiased and free from material (substantial) error. Conclusion After an extensive research of scholarly journals and other documents related to ethical theories and their effects on the perceptions of graduating accounting students, a gap in the literature was found concerning whether the new 150 credit rule was effective. Such information would assist in determining if an increase of 30 credit hours in the accounting curriculum actually influenced the graduating accounting students’ moral reasoning. Kohlberg’s (1969) theory on cognitive moral development (CMD) measured three levels or stages beginning with a youth and continuing on through adulthood. Kohlberg also made clear in his research how one’s surroundings affected that person’s ability to make moral decisions. Kohlberg’s theoretical model comprised three levels with two stages for each level. James Rest (1979), building on the framework of Kohlberg’s theory, introduced the Defining Issues Test (DIT) as a reliable instrument to examine the moral judgment in harmony with the stages of Kohlberg’s theory of CMD by the use of moral dilemmas. The DIT was an enhancement to the protracted interviewing process of Kohlberg’s instrument (Rest, et al., 1999). Rest’s DIT has been used widely in academia to measure “change in ethical judgment pre- and post-educational interventions” (West, et al., 2004, p. 174). Rest et al. (1999) showed that there was a direct relationship between the outcomes of their instrument and the behaviors of individuals as important to the 52 reliability of their instrument. Rest (1979) was mentioned in the literature as a bridge to Victor and Cullen’s Ethical Climate theory through the stages of Kohlberg’s theory. Victor and Cullen (1988) used an organization’s ethical climate to measure the moral reasoning of individuals. Victor and Cullen (1987, 1988) recognized several classifications of ethical climates. These ethical climates were referred to as the established practices and processes in an organization that were defined by what was considered to be right or wrong. Based on the former work by Victor and Cullen (1988), Martin and Cullen (2006) added a different dimension to the ethical climate. Martin and Cullen (2006) conducted a meta-analysis of the literature relating to the ethical climate, which revealed several key variables related to ethical climates including work satisfaction. Similarly, Victor and Cullen’s work revealed how people within an organization played an important part in the study of ethical perceptions (Barnett & Schubert, 2002). While not all experts seemed to agree, the majority of the literature indicated that intervention in education with additional accounting courses may, in fact, be effective in promoting ethical development in business school students (Dellaportas, 2006; Hurtt & Thomas, 2008; Kai-Wen, 2007; Swanson, 2005). The question remained, however, as to how much additional coursework was required to influence the perceptions and moral reasoning of graduating accounting students. Dellaportas (2006) argued that graduating accounting students may reason more ethically after taking a course dedicated to accounting ethics as opposed to no such course at all. It remained to be seen whether an increase of 30 credits to the accounting curriculum had a significant influence on graduating accounting students’ ethical perceptions. 53 Summary Inside the theoretical framework of Lawrence Kohlberg, followed by the contributions of both James Rest and Victor and Cullen, the AICPA’s mandated curriculum change in accounting may have suggested important constructs on the study of ethical perceptions among graduating accounting students (Dellaportas, 2006; Earley & Kelly, 2004). The focus of this research examined the results from the data taken from graduating accounting students in the 120 credit program and the 150 credit program using the DQ and ECQ as an instrument. To provide a conceptual foundation for this study, the literature was reviewed to better understand the concepts on ethics beginning with a historical perspective on cognitive moral reasoning, ethical theories, ethical perceptions, business ethics, and ethics in education. 54 CHAPTER 3: METHODS A cross-sectional survey design was used to evaluate the ethics perceptions among newly graduated accounting students from the 120 credit programs and the 150 credit programs in New York. This study examined participating graduates’ stages of moral development, using the Ethical Climate Questionnaire (ECQ). The literature review presented a theoretical foundation for this study and examined empirical research on moral reasoning and the impact of ethics classes on the ethical perceptions of newly graduated accounting students. The survey findings provided insight into the ethical perceptions of accounting graduates from both groups. Although past studies on the examination of an individual’s ethical perceptions have been performed (Kohlberg, 1976; Rest, 1973; Victor & Cullen, 1988), only a small amount of research was conducted on this subject and no research was found on the ethical perceptions of accounting graduates concerning the new changes from the 120 credit program to the 150 credit program mandated by the American Institute of Certified Public Accountants (AICPA). Research Design A quantitative method was selected for this study to examine whether there was a statistically significant difference between accounting graduates who completed 120 credits and accounting graduates who completed 150 credits (independent variable), and these accounting graduates’ ethical perceptions (dependent variable) as measured by the questionnaires used in Figure 1. An analysis of the nine ECQ variables was conducted using a cross-sectional research method to explore whether any differences existed among those variables (Salkind, 2003). A cross-sectional design was deemed appropriate 55 for this study as it examined current attitudes, beliefs, opinions, or practices (Creswell, 2005). Independent Variable 120 Credits 150 Credits Dependent Variable x x x x x x x x x ECQ Self-Interest (EI) Company Profit (EL) Efficiency (EC) Friendship (BI) Team Interest (BL) Social Responsibility (BC) Personal Morality (PI) Rules (PI) Laws (PL) Figure 1. Study variables from the items found in the DQ and ECQ. Research Methods and Design Appropriateness A quantitative research approach was used for this study because of its ability to allow for the assessment and measurement of the respondent’s abilities (Creswell, 2005). This research approach examined accounting graduates’ different levels of education and their moral reasoning ability. The two constructs ethics and education were examined for accounting graduates who finished the 120 credit accounting program compared with those who finished the newly mandated AICPA 150 credit accounting program. Creswell (2005) argued that the primary uses of quantitative research were experimental, crosssectional, or a survey research design. 56 The study used accounting graduates from both public and private colleges and universities in New York State. The instrument employed a cross-sectional survey in order to measure the ethical perceptions of accounting graduates (Johnson & Christensen, 2004). A cross-sectional survey was used because this approach permitted the study to “compare two or more educational groups in terms of attitudes, beliefs, opinions, or practices. These group comparisons compared students with students…or they compared other groups within educational and school settings” (Creswell, 2005, p. 356). In the past, cross-sectional studies used this type of survey design to assess similar research programs (Albrecht, Shamsub, & Giannatasio, 2007; Shimin, 2008). Sample and Procedures Sampling could best be described as selecting “a set of elements from a population in such a way that descriptions of those elements (statistics) accurately portray the parameters of the total population from which the elements are selected" (Babbie, 1995, p 196). The respondents used in this study consisted of the two groups of accounting graduates. Survey questionnaires were administered to a random sample of 175 accounting graduates from each group, randomly selected from the alumni directories of four nearby colleges and universities listed in the New York State Education Department Office of Higher Education (NYSED) (n.d.), under the 2008 Statistical Data and Reports on institutional files. The four institutions offered both the 120 credit accounting curriculum and the newly mandated AICPA 150 credit accounting curriculum, or an equivalent master’s degree. In addition, all four institutions provided email addresses of accounting graduates in their alumni directories. The participants for this study were 57 volunteers and were granted anonymity and privacy. Individual respondents’ names were withheld and only group data were reported. A total of 350 questionnaires were distributed and 286 were returned, representing a 82% response rate. This sample size was determined through a statistical power calculation produced using G*Power software to determine the number of participants needed in this study to attain a 95% confidence level to avoid any type II errors. An analysis of the computation for the required sample size using an independent sample t-test was determined to be a total of 210 participants, or 105 participants from each group (See Table 3). Table 3 Sample Size Determination Input: Statistical Test Independent t-test Tails 2 tails Effect size d 0.5 α error probability 0.05 Power (1-β error probability) 0.95 Degrees of freedom 208 Sample size group 1 105 Sample size group 2 105 Total Sample size 210 Actual power 0.950128 Output: 58 An option on the NYSED’s website was selected to examine the Inventory of Registered Programs for the 120 credit group. Similarly, an option on the NYSED’s website was available for the 150 credit group that was used to search the programs that lead to a Professional License (CPA 150 credits). Both groups were accounting graduates and were carefully chosen by subject area Business (Accounting and Taxation) for programs for Bachelor’s and Higher on the NYSED website, and then a convenience sample of the four colleges was taken from the Inventory of Registered Programs. Important to note is that graduates in accounting may have had additional training after graduating from college. However, this is beyond the scope of this research and may be considered in a future study. The sample included accounting graduates from 4-year colleges and universities who have graduated in the past two years, 2008 and 2009. The accounting graduates were selected from both having either graduated with 120 credits or 150 credits based on the preference of the accounting program. The survey included demographic questions regarding certain characteristics such as male and female, whether an ethics course was taken, GPA, and whether the CPA exam was passed. A stratified random sample was used to gather the data from accounting graduates in both groups. Stratification is a commonly used technique to combat unevenness that may exist on a characteristic of a sample. Creswell (2005) stated “stratification ensures that the stratum desired will be represented in the sample in proportion to that existence in the population” (p. 148). First, a representative sample was chosen from the two groups of accounting graduates. For instance, there could have been more male participants from the 120 credit program than the 150 credit program. Each group was 59 then separated into subgroups relating to a specific characteristic (e.g., gender, GPA, and knowledge of SOX). From each subgroup, a specific number of respondents were selected using a simple random sample. Data were obtained from four colleges using the New York State Education Department Office of Higher Education (NYSED) (n.d.) under the 2008 and 2009 Statistical Data and Reports on institutions. The option to search the Inventory of Registered Programs by subject for the accounting (Accounting and Taxation) for programs for Bachelor’s and Higher was accessed on the NYSED website. A random sample was chosen for this study that used accounting majors from both the 120 credit program and the 150 credit program from both private and public universities’ alumni directories in New York State. The alumni directories provided contact information based upon discipline (e.g., accounting), phone number, email address and physical address. The procedures used for the distribution of the Ethical Climate Questionnaire (ECQ) included first, an email of the questionnaire, if no response was received after one month, then a copy of the questionnaire was mailed through the U.S. postal system. Consent, Confidentiality, and Geographic Location Consent The data used in this study were gathered from participants aged 18 years or older. Alumni directories for the four colleges chosen for this study were publicly available at the physical address of the college. However, the names of the colleges where the data was collected were withheld. In addition, written documentation was obtained via the Signed Permission to Use an Existing Survey from the authors of the ECQ (See Appendix D). Before data collection, each participant was asked to sign an 60 informed consent for interviewed participants 18 years of age and older (see Appendix E). Confidentiality The respondents for this research were volunteers; they remained anonymous and retained their privacy. To ensure that each respondent remained unidentified, directions instructed the respondents not to include their names or what college or university they attended. Only the group data were examined and described in this study. To preserve the privacy of the respondents, each response was assigned a distinctive number. The questionnaires were identified through the numbers assigned to the responses from the questionnaire and not by the institutional name. A list of study participants and their assigned numbers was kept separate from the questionnaires and stored in a locked filing cabinet in a secure home office. Data from the questionnaire were stored on an encrypted computer and password protected. Security measures for electronic files containing specific data from the questionnaire were stored on a separate partitioned computer drive and were erased by formatting the assigned partitioned drive. The list of study participants will be shredded and destroyed after four years. Geographical Location The geographical location where information for this quantitative research was obtained consisted of four nearby colleges and universities in the metropolitan area of New York State where the 120 credit program and the 150 credit program were offered. The four colleges and universities were chosen as a convenience sample from a list from the New York State Education Department Office of Higher Education (NYSED) (n.d.), under the 2008 Statistical Data and Reports on institutional files. 61 Data Collection Procedures and Rationale The data collected for this quantitative research came from two groups of accounting graduates (who graduated within the past two years) taken from the alumni directories. The first group of accounting graduates consisted of individuals who fulfilled the 120 credit hour program. The second group of accounting graduates was comprised of individuals who completed the mandated AICPA 150 credit hour program, which included 30 additional credits focused on ethics and financial reporting. To ensure equal numbers from each group, a stratified sampling was used to combat unevenness on a characteristic of the sample. To determine which program the graduates were in, the respondents selected which program they graduated from on the Demographic Questionnaire (DQ) (see Appendix G). Data on the outcome variable were collected using the Ethical Climate Questionnaire (ECQ), and descriptive information about the sample was obtained through the Demographic Questionnaire (DQ). A survey containing items from the ECQ and the DQ was first emailed to study participants, and if no response was received it was then mailed in a self-addressed postage paid envelope to addresses listed in the alumni directories. Data collected from both groups were examined to determine whether ethical perceptions differed between accounting graduates from the newly mandated AICPA 150 credit rule and the 120 credit curriculum. The primary method for data collection was through the use of a survey. However, data can be collected through other means such as interviews, focus groups, and the use of the Delphi technique. These other methods were beyond the scope of this study because they were mostly used for a qualitative study. In 62 addition, qualitative data collection such as interviews can be expensive and timeconsuming (Burns & Bush, 2005). Those methods of data collection are also more subjective than quantitative interviews because the evaluator/researcher decides which quotes or specific examples to report. Instrumentation Victor and Cullen’s Ethical Climate Questionnaire (ECQ) was the instrument used for gathering the data for this study. Victor and Cullen’s work was based on the foundational theory of Lawrence Kohlberg cognitive moral development model (CMD). The ECQ contained 36 questions framed into a two-dimensional model that identified an individual’s ethical perceptions within an organization. The first dimension was regarded as the ethical criteria which was in alignment with Kohlberg’s stages of moral development: egoism (self-interest), benevolence (joint interests), and principle or deontology (adhering to a principle). The second dimension suggested each ethical criterion is related to self or oneself (Individual), groups within the organization (local), and the external portion of an organization (cosmopolitan). Victor and Cullen (1988), stated “a locus of analysis is a referent group identifying the source of moral reasoning used for applying ethical criteria to organizational decisions” (p. 105). The ECQ was used to determine if a difference existed between the ethical perceptions accounting graduates from both groups. Additional factors may also have existed such as an individual’s culture, religion, and type of organization where an individual may be employed; a potential limitation to this study is that these additional factors were not included in the analysis. 63 Measure of Variables Creswell (2005) reminded the reader that independent variables were located in purpose statements, research questions, and hypotheses. Additionally, Creswell (2005) stated that the identified variables would exercise influence or predict an outcome. Salkind (2003) stated that the action or circumstances the study controls may affect a particular outcome. Salkind also stated that the best independent variable was independent of any other variable used in the same study and sensitive to changes in the different levels of the independent variable. The independent variable, program type (120 credit or 150 credit), was identified in this research and exercised influence or predicted an outcome on ethical perception using the variables contained within the Ethical Climate Questionnaire (ECQ). Victor and Cullen’s ECQ was used to evaluate the ethical climate of the two groups of accounting graduates and address the proposed hypotheses (See Table 4). Past studies have used several other instruments in the study of ethics. For example, Kohlberg used interviews with his subjects by giving a series of dilemmas to qualitatively study the way people morally thought about his dilemmas (Crain, 1985). James Rest’s Defining Issue Test (DIT) provided methodological improvements to Kohlberg’s dilemmas by reducing multiple pages of scoring to a few pages that were used with Kohlberg’s interviews (Earley & Kelly, 2004). The DIT consists of six moral scenarios that are quantifiable using a multiple choice instrument to measure moral judgment. This study used the ECQ, which consists of 36 questions that measure the ethical perceptions of each group within the respondents’ organizations based on their level of received education. Compared to Kohlberg’s interviews and Rest’s DIT scenarios, the 64 ECQ was the most appropriate instrument for this study because the focus was on the ethical perceptions of accounting students and the other methods tend to look at qualitative information. Since the inception of the ECQ in 1988, this instrument has been repeatedly used by researchers studying ethical climates (Fritzsche, 2000; Koumbiadis & Okpara, 2008; Ingram, LaForge, & Schwepker, 2007; Sivadas, Kleiser, Kellaris & Dahlstrom, 2003). Reliability and Validity Reliability and validity of any research instrument yields creditability to the value of the study (Alam & Perry, 2002). Creswell (2005) stated that “a researcher must first make sure that the selected instrument has reported scores that are valid” (p. 164). Evidence of an instrument’s validity and reliability was a necessity that ensured the consistency of the findings of research (DeVon et al., 2007). The reliability of Victor and Cullen’s Ethical Climate Questionnaire (ECQ) has been validated over the past 20 years. Furthermore, several scholars have examined and tested the ECQ for internal, external, and face validity (Cullen, Parboteeah & Victor, 2003; Dellaportas, 2006). The use of any instrument to gather data for research must be reliable and valid (Alam & Perry, 2002). According to Creswell (2005), an individual conducting research must first ensure that “the selected instrument has reported scores that are valid” (p. 164). The focus of validity was on limiting the errors of research that ensured the integrity and accuracy of the study findings (DeVon et al., 2007; Schermerhorn, Hunt, & Osborn, 2003). Reliability and validity of the results of Victor and Cullen’s Ethical Climate Questionnaire (ECQ) have been extensively tested and examined in the U.S. and abroad 65 by several scholars in previous studies (Dellaportas, 2006; Gundersen, Cappozoli, & Rajamma, 2008; Sivadas, Kleiser, Kellaris, & Dahlstrom, 2003). A study by Cullen and Victor (1993) found, “With 1,167 individuals tested across three surveys the results at the individual level have suggested strong support for the validity and reliability of the questionnaire” (p. 667). Data Analysis First, the DQ was used to gather descriptive information about respondents. Next, hypothesis testing was conducted using the independent sample t-test to determine if a difference existed between the two groups of accounting graduates in mean ECQ scores. The t-test was chosen as the best statistical method for this study because, theoretically, the t-test is appropriate for small samples of 30 or more (Cooper and Schindler, 2003, p. 535-539). Statistical analysis used the “Independent Sample T-Test,” in analyzing any differences between the two accounting graduates by program type (independent variable) and the ethical perceptions (dependent variable). Levene’s test was also used to measure the homogeneity of the variances between accounting graduates from the 120 credit program and the 150 credit program by computing an f-statistic. This test was in addition to the independent sample t-test because it could not be assumed that the two samples had equal variances. Hence, Levene’s test was used to determine if a statistical difference existed between the two groups’ variances. If Levene’s test was statistically significant, then the null hypothesis would normally be rejected. Reliability of the results was determined using Cronbach’s alpha. For the 36 questions found in Victor and Cullen’s (1988) ECQ, a factor analysis was used to 66 evaluate the discriminant validity of the studies variables (Appendix F). The variables in the ECQ were analyzed by a factor analysis to simplify the data and to identify any underlying factors. Hair, Bush, and Ortinau (2006) define factor analysis as “a multivariate statistical technique that is used to summarize information contained in a large number of variables into a smaller number of factors” (p. 591). The Statistical Package for Social Science (SPSS) software program was used to examine the data. Chapter Summary This chapter focused on the methods and procedures used in this study. The focus of this study was to examine the perception of ethics among accounting graduates in the 120 credit program and the AICPA-mandated 150 credit program in selected Association to Advance Collegiate Schools of Business (AACSB) accredited colleges in New York (Bernardi & Bean, 2006). This study investigated the ethical perceptions of accounting graduates using Kohlberg’s (1969) theory as the theoretical foundation. A survey was conducted using Victor and Cullen’s (1988) Ethical Climate Questionnaire (ECQ), which was based on Kohlberg’s theory of moral development. In this study, data were collected through the use of a questionnaire. The data were analyzed using a computer program that has the capability to effectively report the findings. The next chapter reports on these findings which resulted from an analysis of the data collected from the DQ and ECQ. 67 CHAPTER 4: RESULTS AND DISCUSSION The purpose of this study was to examine whether differences existed between the ethical perceptions of newly graduated accounting students in the 120 credit program and those from the AICPA-mandated 150 credit program in four Association to Advance Collegiate Schools of Business (AACSB) accredited colleges in New York. The first section of this chapter covers the descriptive characteristics of the respondents, the second section presents the results of the statistical analyses and discussion of the research hypotheses, and finally, the third provides a summary of the chapter. The data derived from the Demographic Questionnaire (DQ) and the Ethical Climate Questionnaire (ECQ) were analyzed using descriptive and inferential statistics to test the nine hypotheses associated with each research question. Descriptive Characteristics Several general observations were made regarding the aggregate data as well as a statistical analysis of the data related to the research questions and hypotheses. To better understand the data drawn from the sample population, this chapter illustrates the collected data obtained and provides information on the gender-related demographic data, the GPA of students who have taken an ethics course, student employment status, passage of the CPA exam, and internships. Sample Distribution The majority of the ECQ and the DQ questionnaires were administered through email, with a few mailed in self-addressed postage-paid envelopes to members of alumni directories from both private and public universities in New York State. A total of 350 questionnaires were distributed with the aid of accounting chair departments and 68 accounting faculty in the four selected colleges. Table 4 shows a summary of the number of responses distributed and collected. Of the 350 distributed questionnaires, 286 were finally used for the data analysis. Table 4 Questionnaire Response Summary Distributed questionnaires (329 emailed, 21 mailed) 350 Incomplete questionnaires 1.7% 6 No response 16.5% 58 Usable questionnaires (a response rate of 81.7%) 286 The data collected from the respondents showed that the sample was a fair representative of the population of both groups of accounting graduates. Table 5 presents the demographic characteristics of the study participants. The first group of accounting graduates consisted of 144 individuals who fulfilled the 120 credit hour program. Of the 144 respondents, 42% were males and 58% were females. The second group of accounting graduates was composed of 142 individuals who completed the mandated AICPA 150 credit hour program. Of the 142 respondents, 65% were males and 35% were females. A higher GPA, in the range of 3.5 to 4.0, was reported for 88% of the respondents graduating from the 150 credit hour program, compared to 56% of the 120 credit hour program graduates in both of their respective majors. It was interesting to see that the 150 credit program graduates reported a higher GPA than those in the 120 credit program. One reason may be that the accounting graduates were devoted to becoming 69 Certified Public Accountants (CPAs). All 142 of the participants from the 150 credit hour program reported Yes to taking an ethics course, compared to 68% of the respondents who graduated from the 120 credit hour program. It should be noted that the American Institute of Certified Public Accountants’ (AICPA) ultimate goal with the 150 credit rule was to increase the quality of work produced by accountants and respond to demands for ethical accounting (Allen & Woodland, 2006; Carpenter & Stephenson, 2006). Respondents were also asked if they were employed. Of the 120 credit hour program graduates, 52% acknowledged having jobs, while 48% did not. In the 150 credit hour program, 67% answered Yes to the employment question while 47 out of 142 or (33%) responded No to having a job. It is also understandable that many accounting graduates would have jobs, because most accounting firms look for newly accounting graduates who have earned bachelor’s degrees in accounting. Similarly, the 150 credit program graduates reported that 80% were involved in an internship compared to 20% from the 120 credit program (See Table 5). 70 Table 5 Demographic Characteristics of Respondents (N=286) Program Demographic Characteristic 120 Credits % Male 60 42% 92 65% Female 84 58% 50 35% 3.5 to 4.00 80 56% 125 88% 3.0 to 3.45 55 38% 17 12% 2.5 to 2.95 8 6% 0 Have you taken Yes 98 68% 142 an ethics course? No 46 32% 0 Employed Yes 75 52% 95 67% No 69 48% 47 33% Yes 32 22% 114 80% No 112 78% 28 20% Gender GPA Internship 150 Credits % 100% Note. 120 credit-hour program N=144, 150 credit-hour program N=142 Findings Factor Analysis A factor analysis was performed to ascertain whether a definite set of factor loadings were identified in the 36 questions from the ECQ (see Appendix F). A factor analysis was also conducted to evaluate the validity and reliability of the items included 71 the study. According to Creswell (2005), a researcher must first ensure that “the selected instrument has reported scores that are valid” (p. 164). According to DeVon et al. (2007) and Schermerhorn, Hunt, and Osborn (2003), validity is measured by limiting the errors of research in order to ensure the integrity and accuracy of the study findings. For an item to be included in a factor, it must have had at least a .50 factor loading. When taking a smaller number of constructs to capture any relationships between large set variables, a factor analysis may be used as a statistical method to examine if any intercorrelations exist (Ary, Jacob, & Razaviely 1996; Benson & Nasser, 1998). For the 36 questions found in Victor and Cullen’s (1988) ECQ, a factor analysis was used to evaluate the discriminant validity of the studied variables using principle components and Varimax rotation. According to Karthikeyan (2009), “principal component analysis is used where the total variance in the data is considered to determine the minimum number of factors that will account for the maximum number variance of data” (p.50). A factor analysis signified an explanation of the Eigenvalue for each of the nine factors that were found to be greater than one. According to Creswell (2005), this was considered to be statistically significant. The nine factors derived from the ECQ accounted for 78.88% of the variance in the data (Appendix F). The reliability of the nine factor constructs using Cronbach’s alpha for each factor was reported in Table 6 were estimated to be .66, .67, .67, .65, .78, .73, .66, .64, and .68, respectively (See Appendix F). Because the reliability values were greater than .60, it was deemed a good measure with an acceptable level of reliability (Hair, 2006; Litwin, 1995). 72 The factors in this study were related to the theoretical dimensions found in Victor and Cullen’s (1987, 1988) ethical climate types. The nine identified factors (SelfInterest, Company Profit, Efficiency, Friendship, Team-Interest, Social Responsibility, Personal Morality, Rules, and Laws) found in Table 6 were validated and proven to be reliable with the theoretical dimensions found within the ECQ. The ECQ has been used in past research and deemed valid (Cullen, Parboteeah, & Victor, 2003; Dellaportas, 2006; Trevino et al., 1998). Hypotheses Testing This section presents the testing of the hypotheses. The descriptive statistics for the variables are reported in Table 6. The purpose of this study was to examine if a difference existed between the two groups of accounting graduates. As shown in Table 7, the mean scores of the 150 credit program graduates were higher than the mean score of the 120 credit program graduates on all variables except for Social Responsibility. It was suggested by this research that the higher mean scores by the 150 credit graduates was supported by the theory of Cognitive Moral Reasoning (CMD). The rationale was that as a student progressed through the accounting curriculum from the 120 credit program to 150 credit program, the students’ perceptions regarding ethical awareness perhaps increased as a result of the increase in college credits (Clikeman, 2003; Earley & Kelly, 2004; Jones, Massey, & Thorne, 2003). The 120 credit program graduates had a slightly higher mean score than the 150 credit program graduates for the variable Social Responsibility. 73 Table 6 Variable Means and Standard Deviations of both accounting programs Program 120 credit program 150 credit program ECQ EI (Self-Interest) Mean 2.60 Std. Deviation Mean .841 2.69 Std. Deviation .659 EL (Company Profit) 2.70 .920 2.89 .930 EC (Efficiency) 3.60 .849 3.89 .459 BI (Friendship) 2.90 .769 3.09 .341 BL (Team-Interest) 2.80 .860 3.10 .250 BC (Social Responsibility) 3.39 .850 3.41 .520 PI (Personal Morality) 2.89 .610 3.49 .329 PL (Rules) 3.60 .729 3.81 .571 PC (Laws) 3.69 .720 3.80 .488 Note. 120 credit-hour program N=144, 150 credit-hour program N=142; *p[...]... regarding the effectiveness of this curriculum change and whether it is needed (Bierstaker, Howe, & Seol, 2005) The AICPA s ultimate goal with the 150 credit rule was to increase the quality of work produced by accountants given that the business world environment is often changing (AICPA, 2010) The quality of public accountants’ work is dependent upon the demand for ethical accounting, auditing, and assurance... the ethical values of future accountants who will be in positions to lead the way in the area of financial 11 information Leadership within the accounting profession may be influenced by the changes to the profession instated by Congress and the AICPA to avert future scandals like those that proved detrimental to both the economy and society (Chang & Yen, 2007) Additionally, an inquiry into the ethical. .. significantly different between the two groups of accounting graduates RQ2: To what extent was ethical perception (Company Profit) important to the two groups of accounting graduates? H2: Ethical perceptions (Company Profit) will not be significantly different between the two groups of accounting graduates RQ3: To what extent was ethical perception (Efficiency) important to the two groups of accounting. .. groups of accounting graduates The objectives for this study were: (a) to compare ethical perceptions of newly graduated accounting students in both programs after the AICPA s mandated curriculum change to accounting education in the state of New York; and (b) to bridge the gap in literature, because little research had been conducted on the ethical perceptions of accounting graduates who fulfilled the. .. ethical perceptions of accounting graduates may be able to show that ethical awareness can be increased with education, and more importantly, it may avert future scandals (Myers, 2003) As accounting graduates become future leaders in the preparation and presentation of financial information, examining the graduates’ perceptions of ethics in light of the recent changes to the accounting curriculum and the. .. may the consequences of the demand for ethical accountants restore the public’s opinion in accounting firms and auditing services This study examined whether a difference existed between the perceptions of ethics among students in the 150 credit accounting program and those in the previous 120 credit program 10 Significance of the Study Public confidence in the CPA profession diminished following the. .. the AICPA s mandated curriculum change (Read, Raghunandan, & Brown, 2003, p 31) The AICPA s goal in expanding the educational requirements by 30 credits was to improve the quality of graduating accounting students, in turn hoping to advance the quality of work carried out by public accountants As the business environment made adjustments as a result of the unethical decision making of a few accountants,... potentially causing the fall of companies, the employees, and the economy (Guynn, 2005) Unethical behaviors of some corporate officers and accountants have created situations in which financial statements needed for important decisions lacked objective reporting Because initially the individual unethical employees did not bear the brunt of the blame for the misperceptions, but rather the companies themselves... Main RQ: Do accounting graduates in the 150 credit program exhibit significantly different perceptions on ethics than accounting graduates in the 120 credit program? Main H: Ethical perceptions of the two groups of accounting graduates will not be significantly different RQ1: To what extent was ethical perception (Self-Interest) important to the two groups of accounting graduates? H1: Ethical perceptions... and the AICPA endorsed the 150 credit rule which it hoped would create higher quality students who would later become accounting professionals The AICPA believed that increasing the number of credit hours from 120 to 150 would help future leaders in accounting be better prepared An understanding of how the changes by students themselves, by Congress, and by the AICPA impacted the ethical perceptions of

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Ethical perception of accounting program graduates, an investigation into the mandated AICPA curriculum change

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