The Effect of Organizational
Culture and Ethical
Orientation on Accountants’
Ethical Judgments
ABSTRACT. This paper examines the relationship
between organizational ethical culture in two large
international CPA firms, auditors’ personal values and
the ethical orientation that those values dictate, and
judgments in ethical dilemmas typical of those that
accountants face. Using an experimental task con-
sisting of multiple judgments designed to vary in
“moral intensity” ( Jones, 1991), and unique as well
as tried-and-true approaches to variable measure-
ments, this study examined the judgments of more
than three hundred participants in our study.
ANCOVA and path analysis results indicate that: (1)
Ethical judgments in situations of high moral inten-
sity are affected by personal values and by environ-
mental variables, such as the professional code of
conduct (direct and indirect effects) and previous
ethics instruction (direct effect only). (2) Corporate
ethical culture, and a relatively strong firm rules-
orientation, affect auditors’ idealism but not rela-
tivism, and therefore indirectly affect ethical judg-
ments. Jones’ (1991) moral intensity argument is
supported: differences in the characteristics of specific
judgment tasks apparently result in different decision
processes.
KEY WORDS: ethics, ethical judgment, ethical
orientation, moral intensity, organizational ethical
culture, personal values
The accounting community has been concerned
about professional ethics since the American
Association of Public Accountants first adopted
ethical rules in 1905 (Casler, 1964), and accoun-
tants’ ethics have been subject to increased
scrutiny over the ensuing decades. Armstrong
(1987, p. 27) described the atmosphere in recent
years as “a crisis of confidence and credibility”
Journal of Business Ethics 34: 101–121, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Patricia Casey Douglas
Ronald A. Davidson
Bill N. Schwartz
for the profession. In particular, aspersions of
fraudulent financial reporting led the Treadway
Commission (1987, p. 23) to comment on the
“combustible mixture” of incentives and oppor-
tunities to commit fraud and suggest that
personal values and codes of conduct are impor-
tant deterrents to such unethical acts (p. 35).
The Commission’s recommendations were dis-
cussed more recently under a Wall Street Journal
headline asserting that ethics appear to be a
“write off ” for many executives (Blalock, 1996,
p. C1 [discussing Brief et al., 1996]). Brief et al.
found that the relationship between personal
values, codes of conduct and decisions to engage
in financial misrepresentation are “weak at best”
(p. 184). Arthur Brief (one of the study’s authors)
calls this finding “really disappointing” (Blalock,
1996, p. C1), and James Treadway (former SEC
commissioner and head of the Treadway
Commission) calls it “very distressing” (p. C13).
Brief et al. (p. 193) also conclude that these
findings imply additional importance for the
Commission’s other recommendation: creation of
a strong ethical climate within the organization,
characterized as essential to preventing unethical
acts (Treadway, 1987, p. 56).
This paper reports on a study of ethical
decision-making in public accounting, which
tests the Treadway Commissions’ assertions about
the effect of an ethical organizational environ-
ment. The study investigated the effects of
personal values and other factors on accountants’
judgments of ethical dilemmas typical of those
encountered in practice. Factors include demo-
graphic variables, previous ethics instruction,
familiarity with the profession’s code of conduct,
102 Patricia Casey Douglas et al.
professional experience, position within the firm
and, most significantly, organizational ethical
culture as it is represented by perceptions of the
firms’ shared values and practices.
Background and hypothesis development
Models of the ethical decision process provide a
general consensus that two influences predomi-
nate in ethical decisions: they “share the view-
point that ethical decision making in
organizations is a function of individual as well
as organizational factors” (Akaah and Riordan,
1989, p. 113 [emphasis added]). Among the prin-
cipal conceptual models, Trevino (1986) focuses
on Kohlberg’s moral development in her identi-
fication of individual influences, but Ferrell and
Gresham’s (1985) and Hunt and Vitell’s (1986)
models include the personal values of the decision
maker. Ferrel and Gresham (p. 89) include values
along with knowledge, attitudes and intentions
as primary influences on judgment; Hunt and
Vitell (p. 10) include them within the “dimen-
sions” of “personal experiences.” Both Hunt and
Vitell (1986) and Trevino (1986) explicitly posit
organizational ethical culture as an organizational
factor influencing ethical behavior; Ferrell and
Gresham include it with significant others and
professional codes of conduct as secondary influ-
ences on judgment (p. 89).
Personal values
Personal values are a classification of the hundreds
of thousands of beliefs that individuals con-
sciously or unconsciously hold about the world
in which they live (Rokeach, 1972, p. 1). Values
are distinguished from other beliefs by their
content. They are enduring beliefs that certain
modes of conduct (e.g., fairness) or end-states
of existence (e.g., equality) are preferable to the
alternatives (p. 160). Values guide judgments and
actions across specific objects and situations and
beyond immediate goals.
Despite such theoretical support, Brief et al.
(1996, p. 184) note the “paucity of empirical
research addressing the potential relationship
between particular values that individuals hold
and engagement in fraudulent behavior.” Indeed,
Brief et al. (1991, p. 380) observed values to be
related to ethical decisions only under conditions
of low accountability (i.e., few “pressures to
justify one’s opinions to others” [p. 382]). Their
(1996) attempt to identify which of Rokeach’s
(1968, “Values Survey”) eighteen “terminal”
(i.e., “end-state”) values are associated with
fraudulent financial reporting revealed only
“modest magnitudes of correlation” (p. 188) and
“weak and inconsistent” relationships (p. 192)
with subjects’ willingness to commit fraud.
Rokeach’s Values Survey (1968) provides a
generalized assessment of subjects’ preferences for
a prosperous life, a world at peace, family
security, etc. Forsyth’s (1980) taxonomy of ethical
ideologies is more specific. As Forsyth describes
it, an individual’s ethical orientation (i.e., ethical
value system) may be described most parsimo-
niously by his position with respect to two basic
factors. The first factor is the extent to which
he rejects universal moral rules in favor of a
more “relativist” approach to moral decisions.
Relativists believe that there are many ways to
look at moral issues and are skeptical of specific
ethical principles (p. 175). The second factor is
the extent to which an individual assumes that
good consequences always can be obtained (an
“idealist” approach) rather than admitting that
consequences are often a mix or good and bad
(p. 176). In general, the stance an individual takes
with respect to these two factors will influence
the ethical judgments reached (p. 183). Figure 1
presents the four possible ethical orientations
(i.e., combinations of high/low idealism and
relativism), labeled situationism, absolutism, sub-
jectivism, and exceptionism), with Forsyth’s (1992)
descriptions.
Forsyth’s taxonomy has proven useful in
explaining differences in moral judgments
(Forsyth, 1980, 1992; Arrington and Reckers,
1985; Douglas and Schwartz, 1999; Douglas and
Wier, 2000) and sensitivity to ethical issues
(Shaub et al., 1993).
Conceptual models of ethical decision-making
(e.g., Ferrell and Gresham, 1985; Hunt and
Vitell, 1986) suggest and prior research (e.g.,
Forsyth, 1981, 1992) demonstrates that personal
 The Effect of Organizational Culture and Ethical Orientation 103

High relativism Low relativism

Situationist Absolutist
High Idealism Reject moral rules; ask if the Feel actions are moral provided
action yielded the best possible they yield positive consequences
outcome in the given situation. through conformity to moral rules.

Subjectivist Exceptionist
Low Idealism Reject moral rules; base moral Feel conformity to moral rules is
judgments on personal feelings desirable, but exceptions to these
about the action and the setting. rules are often permissible.

Adapted from Forsyth (1980, 1992).

Figure 1. Taxonomy of ethical ideologies.

values provide the basis for moral judgments.
Previous contradictory findings (e.g., Brief et al.,
1991; Brief et al., 1996) and the specificity of the
judgment task in this study (i.e., ethical dilemmas
specific to public accounting practice) make the
direction of the hypothesized effect an empirical
question. The first hypothesis is based upon this
line of reasoning and stated in the null form:
HO1: Ethical orientation and ethical judg-
ments are not related.
Jones (1991) argues that differences in charac-
teristics of a moral issue itself, its moral intensity,
affect individuals’ responses to the issue. Models
of ethical decision-making that fail to consider
details of the ethical issue imply that individual
decisions and behavior are identical for all moral
issues. “For example, people will decide and
behave in the same manner whether the issue is
the theft of a few supplies from the organization
or the release of a dangerous product to the
market” (p. 371). This is neither intuitively
correct nor consistent with the prior research that
Jones discusses (pp. 371–372).
Jones identifies the six characteristics of moral
issues indicated in Figure 2, which he aggregates
into a single moral intensity construct. Moral
intensity is expected to change if there is a
change in any one of its components, although
“it is impossible to precisely specify . . . the rela-
tionships between the moral intensity construct
and its components” (p. 378). Jones argues that
these characteristics should be aggregated into a
single construct because they are all components
of the moral issue itself and are expected to have
interactive effects. He cautions that “measure-
ment of moral intensity and its components is
probably possible only in terms of relatively large
distinctions” (p. 378). Therefore, this study
attempted to represent the moral intensity
variable at only two levels, high (i.e., high on
more than three of the six components) and low.
These variations in moral intensity were repre-
sented in the content of the vignettes developed
for this study as discussed later in this paper’s
methodology section.
Because differences in judgments may result
from differences in the moral intensity of the
ethical issues under consideration, two additional
hypotheses were used to test for this effect:
HO1a: Ethical orientation and ethical judg-
ments in situations of high moral
intensity are not related.
HO1b: Ethical orientation and ethical judg-
ments in situations of low moral inten-
sity are not related.
Organizational ethical culture
Organizational culture is, at its core, a system of
common values. Personal values begin to develop
early in life and, like the more general beliefs, are
104 Patricia Casey Douglas et al.

1. Magnitude of consequences: the sum of the detriments or benefits done to victims or beneficiaries of
the act.
2. Social consensus: the degree of social agreement that the act is good or bad.
3. Probability of effect: the joint probability that the act will actually take place and that it will cause the
detriment or benefit predicted.
4. Temporal immediacy: the length of time between the present and the onset of the act’s consequences.
5. Proximity: the “feeling of nearness (social, cultural, psychological, or physical) that the moral agent has
for victims (beneficiaries) of the . . . act” (p. 376).
6. Concentration of effect: an inverse function of the number of people affected by the act.

Figure 2. Components of moral intensity.

organized into hierarchical systems with describ-
able and measurable properties and observable
behavioral consequences. Because personal values
are more central, or “closer to [one’s] personality
than other constructs such as attitudes and
opinions” (Ravlin and Meglino, 1987, p. 156),
they resist change to an even greater degree.
Early social-psychological theories of belief
systems (e.g., Rokeach, 1972) describe value
change as a cognitive process, the result of a
basic human need for cognitive consistency.
Modification of the personal value system was
thought to result from efforts to reduce a per-
ceived inconsistency among an individual’s atti-
tudes, values and behavior, or between his and
some significant other’s attitudes, values, motives
or behavior (p. 165). More recent belief system
theory (e.g., Grube et al., 1994, p. 156) postu-
lates that change is an affective process, the result
of a need to feel self-satisfied with one’s own
competence and morality. Both the cognitive and
affective perspectives are consistent with the
many studies reviewed in Grube et al. which
demonstrate that personal values can be changed
through a process termed value self-confrontation.
Individuals presented with feedback concerning
their own and significant others’ values, attitudes
and behaviors are motivated to change values,
attitudes and behaviors not consistent and to
maintain those that are consistent with the
referent norm (p. 157). Both perspectives are
consistent with theories of socialization and
organizational culture.
Fogarty (1992, p. 130) defines socialization as
“the process by which individuals are molded by
the society to which they seek full membership.”
This “molding” requires a modification of
“reflexes” (i.e., personal values, attitudes and
behaviors) through instruction received in the
social environment. Business and professional
organizations shape themselves in response to the
demands of their environment and provide
members with incentives to adopt attributes con-
sistent with that milieu. Socialization plays an
even more important part in professional orga-
nizations like accounting firms, where neither
employee behavior nor output relevant to the
desired performance is measurable. These orga-
nizations must rely on clan control (Ouchi, 1979,
1980) or the operation of strong common values
to control possible opportunism and the ineffi-
ciencies caused by incongruent individual and
organizational goals.
The system of common values that Ouchi
(1979, 1980) describes is but part of the overall
organizational culture. Values are the core of
organizational culture, manifested in organiza-
tional practices. Values describe what should be,
while practices describe what is (Pratt and
Beaulieu, 1992, p. 668). Brief et al. (1996,
p. 193) call it organizational climate – “the ‘feel’
of an organization; [that is,] . . . the perceptions
of organizational members about how organiza-
tions function and/or what is important in their
organizations.” Perceptions of organizational
culture are “based upon the conditions people
experience in their organizations – the events,
practices, procedures, and rewarded, supported,
and expected behaviors that characterize the
organization” (p. 194).
Organizational ethical culture or, more specif-
ically, the ethical environment within the firm
 The Effect of Organizational Culture and Ethical Orientation
created through management practices and
espoused values, may be the most important
deterrent to unethical behavior. The Treadway
Commission’s (1987, p. 56) study of fraudulent
financial reporting concluded with respect to
public accounting firms that the “tone that top
management sets is an essential factor in devel-
oping a strong ethical climate within the orga-
nization.” In perhaps the only empirical study of
ethical culture or the in public accounting firms
to date, Finn et al. (1988) find that by discour-
aging unethical behavior top management can
reduce the ethical problems that subordinates
perceive.
Ponemon and Glazer’s (1990) results suggest,
and Douglas and Schwartz (1990) confirm, that
socialization in the accounting profession actually
begins during college with students’ first
exposure to professional values and behavior.
Shaub et al. (1993, p. 153) find mixed evidence
of “the ability of the organization to either
change an auditor’s ethical orientation to match
its own, or to provide an environment that
closely matches an auditor’s norms.” Ponemon
(1990, 1992) confirms the existence of a
selection-socialization mechanism operating to
control ethical reasoning in public accounting
firms. In essence, selection-socialization causes a
firm to hire and promote individuals who fit into
the prevailing firm culture and causes individ-
uals unable to fit into that culture to leave.
Jeffrey and Weatherholt (1996) find no
evidence of differences in moral development
between accountants employed in private enter-
prise and those in public accounting, or among
Big Six auditors employed at different ranks
within their respective firms (i.e., no evidence
of a socialization process with respect to ethical
decision-making in public accounting firms).
They do find differences across offices of different
firms and across offices within the same firm,
suggesting the effect of organizational culture.
These theories – of value change, selection,
socialization, organizational culture – together
with prior empirical evidence from these and
other studies,1 suggest that organizational ethical
culture may act to modify personal values within
the organization. The direction and magnitude
of effect would be determined by specifics of the
105
culture (i.e., particular practices and shared values
espoused). As we know of no previous study of
ethical culture within CPA firms that would
provide the specifics necessary to hypothesize the
direction of affect, the second hypothesis is stated
in the null form:
HO2: Ethical orientation and organizational
ethical culture are not related.
Theory and evidence discussed above also
suggest that organizational ethical culture may
affect individuals’ judgment in situations with an
ethical component, and that the effect may be
either direct (e.g., the result of a rules-vs-indi-
vidual judgment approach on the part of the
firm, previous ethics training, or the strength of
professional codes of conduct) or indirect (e.g.,
the result of environmental influences acting to
shape the individual decision-maker’s personal
values). The direction of this hypothesized effect
would be determined by the particular culture
and by specifics of the judgment task. Therefore,
the third hypothesis is also stated in the null
form:
HO3: Organizational ethical culture and
ethical judgments are not related.
Again, separate hypotheses were used to test for
the effect of differences in moral intensity:
HO3a: Organizational ethical culture and
ethical judgments in situations of high
moral intensity are not related.
HO3b: Organizational ethical culture and
ethical judgments in situations of low
moral intensity are not related.
Methodology
Participants in this study were practicing accoun-
tants employed by two large, international
accounting firms. Three hundred sixty-eight
auditors at various experience levels and positions
within the firms were tested in groups. Sixty-four
failed a manipulation check built into the
experimental task or did not provide complete
106 Patricia Casey Douglas et al.

response sets,2 resulting in a usable sample of 304
(82.6%).3
Testing of subjects was done under the
auspices of a supportive public accounting firm,
who provided access and time for testing at their
regularly-scheduled training sessions. Training
sites are located in California, Florida, and
Washington, D.C.; however, participants for these
sessions come from all over the United States.
Data from 103 staff, 136 seniors, and 65
managers are included in this study although dis-
tribution across positions varies by firm. One
firm provided more staff participants; the other
firm, more managers. Experimental materials
comprised an anonymous, self-administered
questionnaire with multiple measures, generally
considered to be the least obtrusive way to elicit
sensitive information. Completion of the ques-
tionnaire took less than 20 minutes, so excessive
length would not be expected to reduce atten-
tion to the materials.
Table I presents statistics or frequencies for
demographic variables. The typical participant
was a 26 year-old (range 22 to 37 years), male
(predominates by 56.3%) Senior (45.0%; Staff,
33.5%; Managers 21.5%), without CPA certifi-
cation (53.4%). Note that the observed between-
firm demographic differences are driven by the
rank distribution difference: age, gender, marital
status, professional certification, and professional
group membership are strongly correlated with
position (p ≤ 0.0001). Of these, only gender
is correlated with a variable of interest here
(ethical orientation) and is discussed later in this
study.
Variables: Measures of ethical orientation
Forsyth’s (1980) Ethics Position Questionnaire
(EPQ, Appendix A) was used to measure idealism
and relativism, the two basic factors that most
parsimoniously describe an individual’s ethical
value system, as previously discussed. The EPQ

TABLE I
Sample demographics (n = 304*)

Age*** Mean 26.14 (SD 3.06)

Range 22–37
Gender** 125 Female 161 Male
(43.7%) (56.3%)
Marital status** 187 Married 95 Not married
(66.3%) (33.7%)
Position** 101 Staff (33.5%)
136 Seniors (45.0%)
65 Managers (21.5%)
Professional certification** 138 Yes 158 No
(46.6%) (53.4%)
Professional group membership** 165 Yes 125 No
(56.9%) (43.1%)
Intend to remain with current firm 247 Yes 45 No
(84.6%) (15.4%)
Intend to remain in public accounting 256 Yes 37 No
(87.4%) (12.6%)

* Responses may not total 304 due to missing values.

** Between-firm difference significant at p ≤ 0.01 (chi-square test).
*** Between-firm difference significant at p ≤ 0.001 (two-tailed t-test).
 The Effect of Organizational Culture and Ethical Orientation
presents a series of statements with which respon-
dents in the current study were asked to agree
or disagree on a nine point scale anchored
“1 = Completely disagree” and “9 = Completely
agree.” Responses to idealism- and relativism-
specific statements were summed to produce the
two variable scores.
The EPQ instrument has been used in prior
studies of both undergraduate and graduate
college students (Forsyth, 1980; Arrington and
Reckers, 1985; Douglas and Schwartz, 1999) and
practicing auditors (Shaub et al., 1993). All attest
to the EPQ’s validity and psychometric proper-
ties. Forsyth (1980), Arrington and Reckers
(1985), and Douglas and Wier (2000) demon-
strate that the measures can be used to explain
differences in moral judgments. The instrument
as applied to current data again reveals that the
two dimensions are orthogonal (interscale cor-
relation of –0.10) and that the scales have
adequate internal consistency (Cronbach’s alpha
of 0.84 for the idealism scale, 0.81 for relativism).
The idealism and relativism measures were
used to classify individuals into one of the four
ethical orientations, as indicated in Figure 1. This
was done using median splits of the idealism (five
subjects have the median score of 58) and rela-
tivism (15 subjects have the median score of 50)
scores. Because of the duplicated median scores,
the four orientations are not equal in size. The
split into high and low groups was made to make
the groups as equal in size as possible. This clas-
sification method results in 69 Exceptionists, 84
Subjectivists, 77 Absolutists, and 74 Situationists.4
Measures of organizational ethical culture
Hunt et al.’s (1989) five-item Corporate Ethics
Scale (CEP, Appendix B, Panel 1) was used to
measure perceived organizational ethical culture, the
ethical environment within the firm created
through management practices and espoused
values – the “tone at the top” of the organiza-
tion. The CEP reflects the extent to which
employees perceive that managers act ethically,
are concerned about ethics in the organization,
and will reward or punish ethical or unethical
behavior (Bearden et al., 1993, p. 253). Hunt et
107
al. (1989) document the development of the five-
item scale used in the current study from a larger
pool of items (Hunt el al., 1984) and a sample
of over 1,200 respondents. Factor analysis and
coefficient alpha were used to assess the dimen-
sionality and reliability of the scale. The CEP was
adapted for the current study only by substitu-
tion of the word “firm” for “company” in the
original as a concession to the organizational
structure of public accounting.
The five items in the CEP scale were summed
to form an overall index of organizational ethics
in the current study. Hunt et al. (1989) used a
seven-point response scale, but participants in this
study were asked to agree or disagree with its
statements on a nine-point scale to maintain con-
sistency with the EPQ and judgment measures.
This adjustment appears not to have affected the
scale’s psychometric properties. Hunt et al.
(1989) reports Cronbach’s alpha of 0.78, a uni-
dimensional factor structure, and beta coefficients
in models of CEP score and other factors as pre-
dictors of organizational commitment ranging
from 0.17 to 0.58 (p ≤ 0.01) across four sub-
samples of the data. As applied in the current
study, data reveal Cronbach’s alpha of 0.71 and a
unidimensional factor structure. Consistent with
the prior findings, a statistically significant cor-
relation (p = 0.0171) between CEP score and
response to a rough proxy, single-item measure
(“intend to remain with current firm”) suggests
the CEP to be a predictor of organizational com-
mitment.
Other influences
The five CEP questions in the questionnaire were
interspersed with others (Appendix B, Panel 2)
intended to assess and/or control for additional
environmental influences on personal values or
judgments suggested by the literature. They (and
their sources) are: explicitness of the firm’s
policies, or a management emphasis on rules
versus judgment (Brief et al., 1991, p. 393); pro-
fessional involvement (Mayer-Sommer and Loeb,
1981, p. 131); understanding of the profession’s
code of conduct (Fulmer and Cargile, 1987,
p. 216); and previous ethics training in college5
108 Patricia Casey Douglas et al.

(Hiltebeitel and Jones, 1991, p. 272; Armstrong,
1993, p. 90). Inclusion of CEP items with these
others provides a less obtrusive way to question
the sensitive area of firm policies and practices.
Measures of judgment
A series of vignettes portraying situations
involving conflicts of interest, confidentiality,
favors for clients, and lowballing were used to
elicit measures of ethical judgment. These
vignettes were developed using an established
technique for assessing their validity: develop
vignettes based upon the literature, submit
vignettes to a panel of experts, pretest the
vignettes on subjects similar in characteristics to
the sample population (Cavanaugh and Fritzsche,
1985). Each vignette describes a situation and a
fictitious CPA’s action, and participants are asked
to agree or disagree with the described action on
the scale previously described.
Some of these vignettes were based upon those
originally developed by Loeb (1971, excerpted
for this study with permission of the Institute of
Professional Accounting) and since used by other
researchers (e.g., Armstrong, 1984); others were
developed by Cohen et al. (1994, used with per-
mission of the authors). The situations described
are typical of those CPA’s frequently cite as
ethical problems confronted in practice (i.e.,
“conflicts of interest, independence, and fee
problems” [Finn et al., 1988, p. 613]). The
instrument was pretested on a separate sample of
40 accounting practitioners.
Ethical dilemmas encountered in practice
vary in moral intensity; therefore, as Jones (1991)
theorizes, can be expected to elicit different
responses – albeit measurable “only in terms of
relatively large distinctions” (p. 378). Therefore,
this study attempted to represent the moral inten-
sity variable at only two levels, high (i.e., high
on more than three of the six components) and
low. These variations in moral intensity were
represented in the content of the vignettes devel-
oped for this study, summarized in Figure 3.
The six moral intensity characteristics present
a challenge in the construction of vignettes
describing dilemmas within an accounting
context, as the researchers were unable to find
any previous study which attempted to opera-
tionalize or explicitly control for the construct.
Following Jones’s (1991) theoretical discussion,
differences in magnitude of consequences, prob-
ability of effect, and temporal immediacy were
established in the vignettes by use of qualitatively
different terms (e.g., could rather than will). Social
consensus within the professional community is
reflected by prohibitions against certain practices.
The researchers reasoned that proximity and con-
centration of effect would vary (high to low)
with the broad areas of the accountant’s obliga-

Moral intensity characteristics: Vignette:

#1 #2 #3 #4 #5 #6 #7a

Magnitude of consequences L L H H L H H
Social consensus L L H H L H H
Probability of effect L L H H L H H
Temporal immediacy L L H H L H H
Proximity H L/Hb L H L L/H H
Concentration of effect H L/Hb L H L L/H H
Overall moral intensity ratingb L L H H L H H
a
Duplicates salient features of #4 – provided as a manipulation check.
b
Indicates midrange on a low-to-high continuum.

Figure 3. Variations in moral intensity in vignettes.

 The Effect of Organizational Culture and Ethical Orientation 109

tions represented in specific vignettes: obligations
to clients, to colleagues, and to the public.
The manipulated variable, moral intensity,
requires only two vignettes to represent the high-
versus-low possible states. However, Murphy and
Laczniak (1981, p. 262) suggest that an indi-
vidual’s ethical decisions are represented best over
a variety of situations and decisions. Replication
also helps control for chance fluctuations in
responses. Therefore, three vignettes representing
each of the two states of moral intensity were
presented. An additional vignette that duplicated
the salient features of one of the other six was
included to provide a manipulation check. Thus,
seven vignettes were presented to the subjects but
responses to only six comprise the judgments
measure.
Results
Tests of hypotheses
Table II presents results of univariate tests of
central tendency and association for demographic
and value-variables (i.e., idealism, relativism,
CEP) of interest. Significant between-firm dif-
ferences are evident in one measure of personal
values, but not in the other: mean relativism
scores between firms are statistically different;
mean idealism scores are not. As relativism and
idealism are significantly correlated with gender
(at p = 0.027 and p = 0.001, respectively),
between-firm gender differences are not likely to
explain the difference in one (relativism) but not
in the other (idealism).
Measures of idealism and relativism show no
significant correlation with age or position. In
fact, mean scores from these data are not statis-
tically different from those of a separate sample
of 21-year-old senior undergraduate accounting
students (Douglas and Schwartz, 1999). This is
an important finding because older subjects are
expected to be less idealistic and less relativistic
than younger subjects (Forsyth, 1980, p. 181),
and because an understanding of the socialization
process leads to the expectation that personal
values will be shaped by the organization over
time.
Also of particular interest to this study, the
measure of organizational ethical culture, the
CEP, shows a significant between-firm difference
(p ≤ 0.01) which cannot be explained by
observed between-firm demographic differences.
CEP scores are significantly correlated with
position (p = 0.015) but not with age (p = 0.160)

TABLE II
Univariate tests of central tendency and association

Variables Mean Std. Dev. Correlation Coefficients (p values)

Idealism Relativism CEP Firm

Idealism 5.72** 1.39

Relativism 4.97** 1.36 –0.103
(0.073)
CEP 6.97** 1.26 –0.198 –0.101
(0.000) (0.079)
Firm n/a n/a –0.017 –0.129 0.148
(0.770) (0.024) (0.010)
Position n/a n/a –0.065 –0.029 0.140 0.614
(0.255) (0.615) (0.015) (0.000)

* Between-firm difference significant at p ≤ 0.05 (two-tailed t-test).

** Between-firm difference significant at p ≤ 0.01 (two-tailed t-test).
110 Patricia Casey Douglas et al.
or gender (p = 0.953), despite these three demo
graphic variables’ previously noted correlation.
The scores are significantly correlated with the
personal values measure, idealism (p ≤ 0.000), and
weakly correlated with relativism (p = 0.079).
This finding might indicate a moderating effect
of organizational environment on personal values
consistent with socialization theory were it not
for the previously discussed evidence implying
that personal values in these firms do not change
over time (i.e., idealism and relativism are not
significantly correlated with position, as would
be expected when values are shaped by an
organization).
To test HO1, we used three separate analyses
of covariance (using SAS Proc GLM), as the
judgment score dependent variables are contin-
uous and the independent variable of orientation
is a classification variable while the four measures
of other influences (i.e., management emphasis
on rules versus judgment, professional involve-
ment, understanding of the profession’s code of
conduct, and previous ethics instruction) are con-
tinuous variables (Table III, Models 1 to 3). Of
the three models, only the model for high inten-
sity ethical judgments is significant (R2 = 0.071;
p = 0.003). Ethical orientation is significant (F
= 2.93; p = 0.034), even after considering the
effects of other influences. The code of conduct
and ethics instruction variables are also signifi-
cant (p ≤ 0.05).
The null hypothesis HO1 cannot be rejected in
its entirety: Ethical judgments in situations of
high moral intensity are affected by personal
values (i.e., ethical ideology), by some environ-
mental variables (i.e., understanding of the
professional code of conduct and previous
ethics instruction). Jones’ (1991) moral intensity
argument is supported: differences in the char-
acteristics of specific judgment tasks apparently
result in different decision processes.
To ensure that the results using the classifica-
tion variable of ethical orientation are not an
artifact of the classification scheme, we reran the
analyses for HO1 using the continuous variables
of idealism and relativism instead of the orienta-
tion variable. We also included an interaction
term for idealism and relativism (Table IV).
Comparison of Tables III and IV, Models 1 to
3 indicates that the R2’s are virtually the same for
all models. However, the model for all judgments
together now is significant (p = 0.044) as is the
interaction term (p = 0.028). The only signifi-
cant “other influences” variable is still ethics
instruction. For the high intensity ethical deci-
sions, the model is still significant (p = 0.004),
but the interaction term is not (p = 0.166). The
same two other variables are significant. Again,
the model for the low intensity ethical judgments
is not significant.
Sensitivity analysis indicates that while the use
of ethical orientation produces virtually the same
R2’s and significant “other influences” terms as
does use of separate idealism and relativism scores
for all models, there are some differences in the
significance of individual variables. Results for
the high intensity ethical judgment model
indicate that the classification of subjects into
ethical orientations makes a difference that is not
detected when using the separate value scores.6
As most studies employing Forsyth’s EPQ use
separate idealism and relativism scores and do not
attempt to classify subjects into the four ideo-
logical groupings (thereby avoiding [as does
Forsyth himself ] the attendant issue of what con-
stitutes “high” or “low” idealism and relativism
scores), this finding may indicate serious reser-
vations for the less-complicated approach.
HO2 was also analyzed with an ANCOVA
model (Table III, Model 4). In this model, ethical
orientation is the dependent variable, perceived
organizational ethical culture (CEP) and the four
“other influences” variables are the independent
variables. This model is marginally significant
(R2 = 0.037; p = 0.047), but none of the
hypothesized independent variables are signifi-
cant at p ≤ 0.05. Additional ANCOVA models
deconstructed the ethical orientation variable,
using summate measures of idealism (Model 4a)
and relativism (Model 4b) as dependent variables.
Model 4a is significant at p < 0.001 (R2 = 0.071),
CEP and firm emphasis on rules vs. judgment are
both significant (p = 0.002 and 0.015, respec-
tively). Model 4b shows no significant results.
Clearly, corporate ethical environment, including
a relatively strong rules-orientation, affects indi-
vidual idealism but not relativism.
We tested HO3, in which organizational ethical
 The Effect of Organizational Culture and Ethical Orientation
culture is hypothesized to affect individuals’
judgment in situations with an ethical compo-
nent, either directly (as a result of a rules-vs-indi-
vidual judgment approach on the part of the
firm, previous ethics training, or the strength of
professional codes of conduct) or indirectly (as a
result of work-environment influences acting to
shape the individual decision-maker’s personal
values), using path analysis. Figure 4 presents the
path model supported by these data: a recursive
causal model of accountants’ ethical judgments,
depicting hypothesized direct and indirect rela-
tionships between corporate ethical culture
(CEP), “other” influences, and judgments, here
limited to situations of high moral intensity.7
Because the ethical ideology construct classifies
respondents into one of four categories not
suitable for this type of analysis, the continuous
variables, idealism and relativism, were used in
the path model. Significant paths are indicated
by one-way arrows and path coefficients indicate
the magnitude of effect.
Table V summarizes the direct, indirect,8 and
residual effects of significant variables. Consistent
with HO1 results previously discussed, significant
direct effects on judgments in situations of high
moral intensity are shown for idealism, but not
for relativism. Also consistent with HO2 results,
corporate ethical culture (CEP) affects idealism,
but not relativism. CEP affects judgments both
directly and indirectly, through its effect on
idealism, although the effect is not statistically
significant at p ≤ 0.05. Data confirm that the pro-
fessional code of conduct directly affects idealism
(p ≤ 0.05) and judgments (p ≤ 0.01), and indi-
rectly affects judgments, although again the effect
is not statistically significant (p ≥ 0.05). An
emphasis on rules vs. judgment directly affects
idealism (p ≤ 0.01) and indirectly affects judg-
ments (but at p ≥ 0.05), and ethics instruction
directly affects judgements (p ≤ 0.01) only.
Discussion and conclusions
This study investigated auditors’ ethical judg-
ments in situations typical of those they face in
practice. Results indicate that ethical orientation
is related to ethical judgments in high (but not
111
low) moral intensity situations. These results
support Jones’ (1991) issue-contingent argument,
but appear counter to those of Brief et al. (1996)
who found little effect of personal values on
ethical judgments. Brief et al. (1991, p. 393)
observe that personal values are related to ethical
decisions only under conditions of low account-
ability. As Tetlock (1983, p. 75) explains this phe-
nomena, individuals will tend towards
consistency with the views of those to whom
they are accountable if those views are known.
If they are not known, the individual has no
choice but to consider other options and tolerate
inconsistency – perhaps to rely on learned
responses (i.e., personal values).
Perceived organizational ethical culture is
indirectly related to ethical judgments in our
results, as ethical culture affects individual values
(i.e., idealism) and idealism affects judgments.
Extending Tetlock’s (1983) logic, the moderating
effect of culture on judgment will be more pro-
nounced if the culture rather explicitly supports
distinct values. Individuals’ summed responses to
CEP questions concerning firm values in this
study ranged from a minimum of 13 (largely
to moderately disagree) to a maximum of 45
(completely agree). The median score was 36
(moderately agree) and the interquartile range is
31 (slightly agree) to 40 (largely agree). These
findings may indicate uncertainty with respect
to what management values, and reliance
on personal values in lieu of organizational
ethical culture. Other environmental influences,
including the professional code of conduct, an
emphasis in the workplace on rules vs. individual
judgment, and previous ethics instruction signif-
icantly influence judgments. These may also
indicate a reliance on prior learned responses in
the absence of a strong ethical culture.
Socialization theory leads us to expect an
eventual convergence of personal values with
those of the organization. Firms mold their
members to fit the organizational environment,
or select and promote individuals who already
fit into the prevailing culture and cause those that
do not fit to leave. The cross-sectional data of
this study show no difference in value measure-
ments among participants at different positions
(i.e., experience levels) within the firm. While
112 Patricia Casey Douglas et al.

TABLE III
ANCOVA analysis

Model 1: Dependent variable: Sum of ethical judgments (R 2 = 0.037)

Source DF Sum of squares Mean square F value P

Model 007 00575.12 082.16 1.65 0.122

Error 296 14776.85 049.92
Corrected total 303 15351.97

Source DF Type III SS Mean square F value P

Ethical orientation 003 00212.09 070.70 1.42 0.238

Emphasis on rules vs. judgment 001 00009.44 009.44 0.19 0.664
Professional involvement 001 00010.42 010.42 0.21 0.648
Professional code of conduct 001 00045.79 045.79 0.92 0.339
Ethics instruction 001 00238.09 238.09 4.77 0.030

Model 2: Dependent variable: Sum of high intensity ethical judgments (R2 = 0.071)

Source DF Sum of squares Mean square F value P

Model 007 00362.91 051.84 3.23 0.003

Error 296 04745.35 016.03
Corrected total 303 05108.26

Source DF Type III SS Mean square F value P

Ethical orientation 003 00140.99 047.00 2.93 0.034

Emphasis on rules vs. judgment 001 00000.26 000.26 0.02 0.898
Professional involvement 001 00005.81 005.81 0.36 0.548
Professional code of conduct 001 00108.32 108.32 6.76 0.010
Ethics instruction 001 00069.25 069.25 4.32 0.039

Model 3: Dependent variable: Sum of low intensity ethical judgments (R2 = 0.014)

Source DF Sum of squares Mean square F value P

Model 007 00097.79 13.97 0.58 0.771

Error 296 07114.90 24.04
Corrected total 303 07212.68

Source DF Type III SS Mean square F value P

Ethical orientation 003 00017.53 005.84 0.24 0.866

Emphasis on rules vs. judgment 001 00012.85 012.85 0.53 0.465
Professional involvement 001 00000.67 000.67 0.03 0.868
Professional code of conduct 001 00013.25 013.25 0.55 0.458
Ethics instruction 001 00050.53 050.53 2.10 0.148
 The Effect of Organizational Culture and Ethical Orientation 113

Table III (Continued)

Model 4: Dependent variable: Ethical orientation (R2 = 0.037)

Source DF Sum of squares Mean square F value P

Model 005 00013.30 00002.66 02.27 <0.047

Error 298 00348.65 00001.17
Corrected total 303 00361.95

Source DF Type III SS Mean square F value P

Corporate Ethics Scale (CEP) 001 00000.96 00000.96 00.82 <0.366

Emphasis on rules vs. judgment 001 00003.13 00003.13 02.67 <0.103
Professional involvement 001 00000.40 00000.40 00.34 <0.560
Professional code of conduct 001 00004.10 00004.10 03.50 <0.062
Ethics instruction 001 00000.20 00000.20 00.17 <0.681

Model 4a: Dependent variable: Sum of idealism measures (R2 = 0.071)

Source DF Sum of squares Mean square F value P

Model 005 04199.06 00839.82 04.53 <0.001

Error 298 55271.68 00185.48
Corrected total 303 59470.73

SOURCE DF Type III SS Mean square F value P

Corporate Ethics Scale (CEP) 001 01863.68 01863.68 10.05 <0.002

Emphasis on rules vs. judgment 001 01112.68 01112.68 06.00 <0.015
Professional involvement 001 00250.73 00250.73 01.35 <0.246
Professional code of conduct 001 00035.37 00035.37 00.19 <0.663
Ethics instruction 001 00086.70 00086.70 00.47 <0.495

Model 4b: Dependent variable: Sum of relativism measures (R2 = 0.024)

Source DF Sum of squares Mean square F value P

Model 005 01362.74 00272.55 01.47 <0.199

Error 298 55159.25 55159.25
Corrected total 303 56521.99

Source DF Type III SS Mean square F value P

Corporate Ethics Scale (CEP) 001 00681.27 00681.27 03.68 <0.056

Emphasis on rules vs. judgment 001 00140.56 00140.56 00.76 <0.384
Professional involvement 001 00058.12 00058.12 00.31 <0.576
Professional code of conduct 001 00278.18 00278.18 01.50 <0.221
Ethics instruction 001 00288.57 00288.57 01.56 <0.213
114 Patricia Casey Douglas et al.

TABLE IV
Sensitivity analyses

Model 1: Dependent variable: Sum of ethical judgments (R 2 = 0.047)

Source DF Sum of squares Mean square F value P

Model 007 00724.29 103.47 2.09 0.044

Error 296 14627.68 049.42
Corrected total 303 15351.97

Source DF Type III SS Mean square F value P

Idealism 001 00166.07 166.07 3.36 0.068

Relativism 001 00286.97 286.97 5.81 0.017
Idealism*relativism 003 00241.29 241.29 4.88 0.028
Emphasis on rules vs. judgment 001 00005.15 005.15 0.10 0.747
Professional involvement 001 00010.46 010.46 0.21 0.646
Professional code of conduct 001 00039.32 039.32 0.80 0.373
Ethics instruction 001 00271.88 271.88 5.50 0.020

Model 2: Dependent variable: Sum of high intensity ethical judgments (R2 = 0.067)

Source DF Sum of squares Mean square F value P

Model 007 00341.97 048.85 3.03 0.004

Error 296 04766.29 016.10
Corrected total 303 05108.26

Source DF Type III SS Mean square F value P

Idealism 001 00009.55 009.55 0.59 0.442

Relativism 001 00041.77 041.77 2.59 0.108
Idealism*relativism 001 00031.09 031.09 1.93 0.166
Emphasis on rules vs. judgment 001 00001.29 001.29 0.08 0.777
Professional involvement 001 00005.41 005.41 0.34 0.563
Professional code of conduct 001 00101.34 101.34 6.29 0.013
Ethics instruction 001 00071.67 071.67 4.45 0.036

Model 3: Dependent variable: Sum of low intensity ethical judgments (R2 = 0.026)

Source DF Sum of squares Mean square F value P

Model 007 00190.99 027.28 1.15 0.332

Error 296 07021.70 023.72
Corrected total 303 07212.68

Source DF Type III SS Mean square F value P

Idealism 001 00095.98 095.98 4.05 0.045

Relativism 001 00109.77 109.77 4.63 0.032
Idealism*relativism 001 00099.14 099.14 4.18 0.042
Emphasis on rules vs. judgment 001 00011.59 011.59 0.49 0.485
Professional involvement 001 00000.82 000.82 0.03 0.852
Professional code of conduct 001 00014.41 014.41 0.61 0.436
Ethics instruction 001 00064.36 064.36 2.71 0.101
 The Effect of Organizational Culture and Ethical Orientation
*** p ≤ 0.001
*** p ≤ 0.01
*** p ≤ 0.05
Figure 4. Significant paths in the model of accountants’ ethical judgments in situations of high moral intensity.
value change can only be assessed by longitudinal
measures not attempted in this study, this current
result would not be expected if personal values
are shaped by the socialization process over time.
Ouchi (1979, p. 846) provides a possible expla-
nation, that organizational growth, turnover and
specialization all serve to undermine the organi-
zational socialization process. These conditions
are typical of public accounting firms. It is also
possible that the group of respondents in this
study, although they come from three within-
firm ranks, may not have been in public
accounting long enough to demonstrate any
significant value congruence.
These data indicate that organizational ethical
culture is interpreted differently by different indi-
viduals in the organization. As previously noted,
individual responses to questions concerning firm
values ranged from fairly strong disagreement to
complete agreement. Dillard and Ferris (1989,
pp. 210–211) remind us that perception involves
selection and organization of environmental
stimuli to provide meaning to experiences for the
perceiver. As each individual responds differently
115
and to different stimuli in the environment, indi-
viduals may perceive the same event, object, or
experience differently.
Of course, the findings of this study must be
considered in view of its limitations. As we
previously pointed out, developing the ethics
scenarios to use was not a simple task. Despite
our conscientious effort and application of the
accepted procedures for developing vignettes to
be used in such studies (previously discussed), it
is possible that the scenarios used were not
appropriate to elicit a wide range of responses.
However, the different results between the high
and low intensity scenarios indicate that the
manipulation was successful. In fact, this study’s
operationalization of Jones’ (1991) moral inten-
sity theory in an accounting setting may be its
major contribution.
It is also possible, as Lord (1992) points
out, that our subjects did not feel accountable
for the judgments required by the experimental
task, so they may not have taken it seriously.
Again, accepted survey-research techniques
were followed to minimize this possibility.
116 Patricia Casey Douglas et al.

TABLE V
Path coefficients in the model of accountants’ ethical judgments in situations of high moral intensity

H OX Variable Variable Direct Indirect Residual Total

effect effect correlation

Path coefficients:
HO1a Idealism → Judgments –0.133*** –0.006 –0.139***
relativism → Judgments –0.069*** –0.004 –0.073***
H O2 CEP → Idealism –0.203*** –0.003 –0.206***
→ relativism –0.098*** –0.002 –0.010***
HO3a CEP → Judgments –0.073*** –0.028 –0.029 –0.072***
Emphasis on
rules vs. judgment → Idealism –0.148*** –0.003 –0.151***
→ relativism –0.025*** –0.021 –0.046***
→ Judgments –0.022*** –0.021 –0.019 –0.024***
Professional code
of conduct → Idealism –0.113*** –0.024 –0.121***
→ relativism –0.052*** –0.005 –0.047***
→ Judgments –0.169*** –0.016 –0.019 –0.166***
Ethics instruction → Idealism –0.052*** –0.004 –0.056***
→ relativism –0.066*** –0.003 –0.069***
→ Judgments –0.144*** –0.001 –0.143***

*** p ≤ 0.001.
*** p ≤ 0.01.
*** p ≤ 0.05.

Experimental materials comprised an anony-
mous, self-administered questionnaire with
multiple measures, generally considered to be the
least obtrusive way to elicit sensitive information.
Completion of the questionnaire took less than
20 minutes, so excessive length would not be
expected to reduce attention to the materials.
Each test administration was conducted under the
auspices of a supportive accounting firm, lending
credibility to the task. By using a scenario
method, we probably do not elicit the same deci-
sions that respondents might have made in “real”
situations. If the task design techniques described
are unable to adequately control for unmeasured
variables, it may be necessary to use deception to
elicit responses that more accurately reveal what
subjects might do in real situations (Hooks and
Schultz, 1996).
Perhaps the most important findings of this
study are found in the ANCOVA models
(Table III), and confirmed by path analysis
(Figure 4; Table V). The summed ethical
judgment scores and the high moral intensity
judgment scores are related to ethics instruction.
For participants in this study, that meant ethics
instruction during their college careers, as neither
firm provides on-the-job ethics training for all
employees. High moral intensity judgment scores
are also related to participants’ understanding of
the professional code of conduct. These rela-
tionships suggest that more ethical judgments
might be achievable through more instruction in
ethics and in the professional code of conduct.
Lastly, this study focused on organizational
culture, although accountants are affected by the
organizational culture of their firms and by the
professional culture of public accounting. While
this study includes aspects of each, no attempt
was made to specifically measure the influence of
professional culture. This might be considered
in future studies.
 The Effect of Organizational Culture and Ethical Orientation 117

Appendix A: Ethics Position Questionnaire (EPQ)

01. A person should make certain that their actions never intentionally harm another even to a small degree.
02. Risks to another should never be tolerated, irrespective of how small the risks might be.
03. The existence of potential harm to others is always wrong, irrespective of the benefits to be gained.
04. One should never psychologically or physically harm another person.
05. One should not perform an action which might in any way threaten the dignity and welfare of another
individual.
06. If an action could harm an innocent other, then it should not be done.
07. Deciding whether or not to perform an act by balancing the positive consequences of the act against the
negative consequences of the act is immoral.
08. The dignity and welfare of people should be the most important concern in any society.
09. It is never necessary to sacrifice the welfare of others.
10. Moral actions are those which closely match ideals of the most “perfect” action.
11. There are no ethical principles that are so important that they should be a part of any code of ethics.
12. What is ethical varies from one situation and society to another.
13. Moral standards should be seen as being individualistic; what one person considers to be moral may be
judged to be immoral by another person.
14. Different types of moralities cannot be compared as to “rightness.”
15. Questions of what is ethical for everyone can never be resolved since what is moral or immoral is up to
the individual.
16. Moral standards are simply personal rules which indicate how a person should behave, and are not to be
applied in making judgments of others.
17. Ethical considerations in interpersonal relations are so complex that individuals should be allowed to
formulate their own individual codes.
18. Rigidly codifying an ethical position that prevents certain types of actions could stand in the way of better
human relations and adjustment.
19. No rule concerning lying can be formulated; whether a lie is permissible or not permissible totally depends
upon the situation.
20. Whether a lie is judged to be moral or immoral depends upon the circumstances surrounding the action.

Appendix B: CEP and other influences

Panel 1: Corporate Ethics Scale (Hunt, Wood, and Chonko 1989)

• Managers in my firm often engage in behaviors that I consider to be unethical.*
• In order to succeed in my firm, it is often necessary to compromise one’s ethics.*
• Top management in my firm has let it be known in no uncertain terms that unethical behaviors will not be
tolerated.
• If a manager in my firm is discovered to have engaged in unethical behavior that results primarily in personal
gain (rather than firm gain), he or she will be promptly reprimanded.
• If a manager in my firm is discovered to have engaged in unethical behavior that results primarily in firm
gain (rather than personal gain), he or she will be promptly reprimanded.

Panel 2: Other influences

• Management generally stresses conforming to rules rather than applying individual judgment.
• I am very active in the profession, attending professional meetings, reading professional publications, etc.
• I was exposed to a great deal of ethics or philosophy instruction during my college career.
• The ethics instruction I received in college was more philosophical than practical.
• I have a thorough understanding of the Professional Code of Conduct.

Note: * items that are reversed scored.

118 Patricia Casey Douglas et al.

Appendix C: Vignettes

Vignette #1: CPA X is approached by a prospective client, a current employee of a large existing client corpo-
ration. The employee discloses that personnel of the client organization are considering forming their own cor-
poration which could eventually provide competition for their employer.
Action: CPA X does not reveal the scheme to his client.

Vignette #2: A client of CPA X refers another client to X and indicates that he expects some small compensa-
tion from X for his services.
Action: X takes the client out to dinner.

Vignette #3: CPA X is developing a bid for a major new client. The client has already expressed to X what he
expects the bid to be. X knows that the fee the client demands is significantly below the cost of rendering the
services and that the audit will lose money in the first few years. However, the expectation is that the firm will
be able to raise the audit fee a few years down the road to generate a profit.
Action: X deliberately sets the bid significantly below cost.

Vignette #4: CPA X serves as the auditor for Widget & Co., a privately held firm. Widget’s market share has
declined drastically, and X knows that Widget will soon be bankrupt. Another of X’s audit clients is Solid
Company. While auditing Solid’s accounts receivable, X finds that Widget & Co. owes Solid $200,000. This
represents 10 percent of Solid’s receivables.
Action: CPA X warns the client, Solid Company, about Widget’s impending bankruptcy.

Vignette #5: CPA X, in addition to practicing public accounting, is heavily involved in community activities.
X has been involved in the past with fund-raising efforts for the local symphony orchestra. In preparation for
a proposal to an international funding organization, the president of the symphony has asked X to perform the
initial audit.
Action: CPA X accepts the audit engagement.

Vignette #6: CPA X has had several meetings with a potential client, the CEO of a very large and profitable
company. The potential client asks X to arrange a position for his son as a staff auditor in another office of the
firm. Although the son is bright, he probably would not have otherwise been given an offer.
Action: CPA X recommends making the potential client’s son an offer.

Vignette #7: While engaged in the audit of Lark Enterprises, a large client company, CPA X discovers that the
company intends to default on a major contract with another of X’s client companies, Southern Company.
Southern’s contract with Lark is its largest, and represents a significant share of its sales.
Action: CPA X warns Southern about Lark’s impending default.

Acknowledgement Notes
1
Winner of the University of Oklahoma’s See Sims (1992, p. 511) for a listing of studies con-
McLaughlin Prize for Research in Accounting cluding that management ethics impacts employee
Ethics. ethics.
2
There were no significant differences in age, years
of experience in public accounting, office size,
gender, undergraduate major, being a CPA, inten-
tion to remain in public accounting, management
 The Effect of Organizational Culture and Ethical Orientation
emphasis on rules versus judgments, professional
involvement, and ethics training in college between
the usable and rejected instruments. There were sig-
nificant differences in position of respondents, with
rejected instruments coming more from staff and
fewer from higher positions. More rejected instru-
ments came from respondents indicating that they did
not intend to remain with their current firm.
Rejected respondents also displayed a higher level of
understanding of the Professional Code of Conduct.
This last difference is the only one that is difficult to
understand.
3
At 17.4 percent, this is only slightly higher than the
5 to 15 percent range of “typical” consistency failures
Rest reports of studies using his instrument (Rest,
1987, p. 15). Following the logic of Rest’s suggestions
for adapting the reported range to the shorter version
of the DIT, the higher failure rate in the current study
would be expected based only upon the larger
number of items in the instrument developed for this
study.
4
As a sensitivity analysis, we also classified respon-
dents into orientation by a median split but ignoring
the duplicated median scores. This resulted in 65
Exceptionists, 75 Subjectivists, 77 Absolutists, and 67
Situationists. We then reran all the models indicated
in Tables III and IV (not shown). Results were not
significantly different.
5
Neither firm provides on-the-job ethics training for
the employee ranks tested in this study.
6
We also conducted a sensitivity analysis using the
64 rejected instruments using the four models shown
in Table III. Results (not shown) were not signifi-
cantly different for any of the four models. We also
recomputed the three regression analyses reported in
Table IV including the 64 rejected instruments. There
were no significant differences in these regression
models.
7
Sub-group analysis was again used to assess the
hypothesized moderating effect of moral intensity
on judgments, as suggested by Sharma et al. (1981).
As in our previous findings, only the model of
judgments in situations of high moral intensity is
significant.
8
Indirect effects were calculated as suggested by
James and Brett (1984, p. 319): in a model of the form
x → m → y, the path coefficient linking x to m is
multiplied by the path coefficient linking m to y to
produce the indirect effect of x on y.
119
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