Effects of materiality, risk, and ethical perceptions on fraudulent reporting by financial executives

Research output: Journal PublicationsJournal Article (refereed)peer-review

22 Citations (Scopus)

Abstract

This paper examines fraudulent financial reporting within the context of Jones' (1991) ethical decision making model. It was hypothesized that quantitative materiality would influence judgments of the ethical acceptability of fraud, and that both materiality and financial risk would affect the likelihood of committing fraud. The results, based on a study of CPAs employed as senior executives, provide partial support for the hypotheses. Contrary to expectations, quantitative materiality did not influence ethical judgments. ANCOVA results based on participants' estimates of the likelihood that a "typical CPA" would manipulate reported results indicated that both materiality and risk significantly influenced the likelihood of fraud, but that the perceived morality of the action did not. In contrast, results based on participants' self-reported behavior indicated that materiality and the perceived morality of the action would influence the likelihood of fraud, but that financial risk would not. Regardless of the measure used for the likelihood of fraud, the results indicate that financial executives continue to be influenced by quantitative materiality when misstatements are clearly material on qualitative grounds.
Original languageEnglish
Pages (from-to)241 - 260
Number of pages20
JournalJournal of Business Ethics
Volume38
Issue number3
DOIs
Publication statusPublished - Jul 2002
Externally publishedYes

Keywords

  • Economic Growth
  • Financial Reporting
  • Partial Support
  • Ethical Decision
  • Financial Risk

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