Recognition and Importance of Ethical Factors in Accountants' Decision Making

Professional accountants in business are expected to not only fulfill legitimate organizational objectives, but also to recognize and deal with the ethical impact of their decisions on a diverse set of stakeholders. Prior research has investigated accountants’ ethical reasoning, but little is known about their ethical sensitivity (i.e. their ability to detect the ethical component of their decisions), which is necessary for ethical reasoning to begin. This study builds on the observation that in situations of ambiguous decisions and competing objectives, decision makers do not process all relevant information; thus, they perceive or attend to only a selected subset that is guided by their view of organizational success. It explores the possibility that when professional accountants’ view of organizational success does not include an explicit ethical component, they may fail to perceive the ethical implications of their decision. A common decision for many of them is whether (and, if so, how) to manage earnings. I conduct an experiment where accounting students and professional accountants in business face different organizational objectives (non-financial objectives present vs. non-financial objectives absent) and recommend whether and how the company should manage earnings to meet benchmarks. I provide evidence that practicing accountants have a lower level of ethical sensitivity than students and their level of ethical sensitive is higher at higher levels of years of accounting experience. Ethical sensitivity levels of practicing accountants and students are higher when organizational objectives include non-financial objectives. Through increased ethical sensitivity, the decision maker identifies a greater number of ethical issues in their decision, allowing for these elements of the decision to have a greater impact on the intended action.