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A methodological note on cross-cultural accounting ethics research
The International Journal of Accounting
A Methodological Note on Cross-Cultural Accounting Ethics Research Jeffrey R. Cohen, Laurie W. Pant, and David J. Sharp Boston College, Suffolk University, and The University of Western Ontario
Key Words:
Research
Design; Cross-Culturab
Methodology;
Hofstede;
Ethics; Behavioral
Abstract:
Predicting international differences in ethical behavior is important for multinational accounting firms. This note reports an empirical test of the usefulness of Hofstedekfive dimensions of culture to predict cross-cultural dfferences in ethical sensitivity. A small-sample survey of academic experts in cross-cultural management research in accounting and other business disciplines demonstrated that Power Distance and Confucian Dynamism were expected to be consistently related to ethical judgment in a series of eight accounting-related ethical vignettes, while Individualism showed strong effects, its direction depended on the nature of the ethical dilemma described in the vignette. Over all of the experts, there was statistically significant consensus. Implications of thefindingsfor the research design of cross-cultural accounting ethics studies is also discussed.
In the case of international studies, cross-cultural differences in attitudes and beliefs are invariably of interest. Identification of these differences is important as a practical matter for managers of international firms. Differences in beliefs as to what constitutes ethical behavior affect attitudes towards unethical behavior, and could, if translated into managerial action, create problems (for American managers, compliance with the Foreign Corrupt Practices Act, for example). A systematic understanding of crosscultural differences could provide guidelines for managers seeking to implement their firms’ code of conduct internationally (Cohen, Pant and Sharp, 1992; 1993), and even indicate the extent to which a formal code is an effective means by which managerial decisions can be guided by a moral framework (Vogel, 1992; Langlois and Schlegelmilch, 1990). Since ethical values are part of culture (Hofstede, 1991), this paper explores whether Hofstede’s five well-known measures of culture can be used to predict ethical sensitivity, defined as the evaluation of, or belief concerning, the morality of a particular action. Specifically, in this note, results are reported of small-sample survey of experts on national culture to demonstrate that these measures of culture can be used to develop Direct all correspondence Management, Department
to: Jeffrey R. Cohen, of Accounting, Chestnut
Boston College, The Wallace Hill, MA 02167-3808.
E. Carroll
School
of
The International Journal of Accounting, Vol. 31, No. 1, pp. 55-66. ISSN: 0020-7063. All rights of reproduction in any form reserved. Copyright @ 1996 University of Illinois
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directional hypotheses concerning cross-cultural is followed by a discussion of the consequences cultural accounting vignette-based studies.
Vol. 31, No. 1,1996
differences in ethical perceptions. This of the findings for the design of cross-
USING CULTURE MEASURES TO PREDICT ETHICAL REASONING A systematic prediction of cross-cultural differences in ethical sensitivity requires a theory of cross-cultural value differences. Enormous progress has been made in this respect since Child (1981) wrote that “the employment of the culture concept has been an excuse for intellectual laziness, whereby “culture” has often served simply as a synonym for “nation” without any further theoretical grounding. In effect, national differences found in characteristics of organizations or their members have been ascribed to . . . national differences, period.” While this perhaps understates the contribution of early cross-cultural research, notably Kluckhohn and Strodtbeck (1961), the need Child identified was addressed in the seminal work of Hofstede (1980) who first identified and measured four dimensions of national culture on a large scale. (More recently, Maznevski, Nason and DiStefano, 1993 have tested a lbcomponent measure based on Kluckhohn and Strodtbeck’s interview protocol; Hampden-Turner and Trompenaars, 1993 have proposed a 7-dimension framework.) If any of these measures are useful for predicting the magnitude of differences in ethical sensitivity, they can be used in research designs to improve sample selection. One important design problem in any cross-cultural research is statistical power, that is, the ability to identify correctly a cross-cultural difference where one exists, and to fail correctly to find one where one does not exist, within a cost-effective sample size. All other things equal, if a theory predicts a larger difference in ethical sensitivity between countries A and B than between C and D, then the same power can be achieved with a smaller sample size from A and B than from C and D. Thus for theory testing purposes, a higher power can be achieved by sampling from countries whose difference is expected to be large.’ This methodological note considers how to use Hofstede’s measures of culture to identify countries with the greatest differences in ethical sensitivities. Hofstede (1980) defined culture as “the collective programming of the mind which distinguishes the members of one human group from another” (p. 19). He argues that values, that is, broad tendencies to prefer certain states over others, lie at the core of culture differences, and include differences in feelings of evil vs. good, (1991, p. 8). In his 1980 study and the subsequent replication which attempted to remove the western cultural bias of the original research design (Hofstede and Bond, 1988), live dimensions of culture were identified, and measured in up to fifty countries.2 These five dimensions are: (I) Power Distance (the extent to which power is unequally shared in a society), (2) Uncertainty Avoidance (the collective need in a culture for security and the general level of anxiety created by the uncertainties of life, (3) Individualism/ Collectivism (the relationship of an individual to his or her group, and the relative importance in the culture of the individual relative to his or her group membership), (4) Masculinity/ Femininity (the extent to which a culture values assertive “masculine” rather than supportive, nurturing “feminine” values), and (5) Confucian Dynamism (the extent to which a culture is long-term or short-term oriented). The live constructs are considerably more complex than the very brief descriptions provided here. For a more complete, authoritative description of all five dimensions, see Hofstede (1991).
Cross-Cultural Accounting Ethics Research
A SMALL-SAMPLE
57
SURVEY
Hofstede’s (1991) five dimensions of culture were used to explore the relationship between culture and the evaluation of possibly questionable actions in eight vignettes (See Appendix A for a description of the vignettes). Since culture is a very complex construct, and the five dimensions identified by Hofstede are far from complete descriptions of cultural differences, it is useful to explore whether each of the five culture dimensions has predictive power vis-a-vis ethical choices. Eight vignettes were adapted from prior ethics research (Claypool, Fetyko and Pearson, 1990; Armstrong, 1985; Loeb, 1971) and through a pretest with 22 practicing auditors from the United States and Europe, who were asked in a mail survey to list ethical situations and dilemmas that could arise in the course of auditing clients or in the work environment of the public accounting profession. The vignettes were then distributed to 11 auditors of another large multinational audit firm, who were asked to evaluate their realism and plausibility and to provide open-ended input on how they might be improved. The eight vignettes, while capturing ethical dilemmas pertinent to current audit practice (to enhance content validity), were devised also to reflect cultural differences and various modes of moral reasoning. For example, the second vignette describes an action in which an accounting firm breaches the professional code of conduct by disclosing to a client information of the impending bankruptcy of another client who owes the first client a considerable sum of money. A collectivist culture might view this action in terms of loyalty and concern for the client which would otherwise be seriously harmed by the bankruptcy. Accountants from a collectivist culture might moderate their view of the morality of this action, compared to those of an individualist culture. Likewise, the dilemma carries overtones of uncertainty avoidance, in that a rule-oriented high uncertainty avoidance culture might define “ethical”solely by whether or not the action is proscribed in a code of conduct. At the same time, a respondent using teleological reasoning could argue that the firm’s (and the healthy client’s) best interest is served by advising of the unavoidable impending bankruptcy, even though it breaches the code of professional conduct. A small sample of academic experts on international culture was surveyed concerning their views on the existence of a relationship between culture dimensions and the ethical evaluation of each of the eight vignettes. Experts were necessary for this purpose because it was essential that the respondents be intimately familiar with the complexity of the five culture dimensions. A survey of the cross-cultural management and international accounting literature identified fourteen academics (eight accountants and six nonaccountants, three U.S. and 11 non-U.S.) who were active in international cross-cultural research using Hofstede’s framework. All are well-known, highly published researchers. Each was personally contacted to take part in the study. One instrument was returned unanswered due to subsequent lack of time, leaving 13 possible respondents. We received responses from 11 experts representing an effective response rate of 85%. The respondents’ functional areas included marketing and organizational behavior; six were known to have an accounting background. To ensure that as far as possible each expert was completely familiar with the meaning of the five dimensions, each was provided with a description of them taken directly from Hofstede (1991). They were asked to review each of the eight vignettes and to state their expectation of the direction of the relationship if any between each of the five cultural dimensions and the morality of the action. (Note that this requires each
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expert to apply his/ her own definition of “morality”). For example, in Vignette 1, the action states “The partner in charge of the engagement accepts the client’s interpretation of the receivables”. The expert was asked to respond to the following question: “I would expect a Masculine culture to view this action as more ethical/about the same/less ethical/ I don’t know, than a Feminine culture.” This was repeated for each of the five cultural variables. Thus, in total, 40 possible expected relationships (five for each of the eight vignettes) were elicited from each subject. “More ethical” was coded as 3, “About the same” as 2, and “Less ethical” as 1. “I don’t know” and blank responses were both coded as missing values. Siegal and Castellan (1988, p. 267) state that Kendall’s coefficient of concordance is an appropriate measure of consensus that “determines the degree of agreement among the raters in their judgments.” Over all 11 subjects, Kendall’s W = .119 @ < .Ol), and the overall mean pairwise rank correlation was 0.28 (p < .Ol). Table 1 shows the pairwise Spearman rank correlations between each respondent for the 40 responses. Twentyfour of the 55 correlations were significant at the 5% level, and two more at the 10% level. Given the extreme cultural diversity of the sample, there was a moderate degree of consensus among experts3 The means of each expert’s correlations ranged from 0.06 to 0.37, indicating that the judgments of some experts differed from the group as a whole more than others. In reviewing the results in more detail, two questions are examined. The first is whether, in the view of the experts, there is a relationship between culture dimensions and ethical evaluations. The percentage of respondents who indicated a relationship (whether positive or negative) provides a measure of this. Overall, of the forty possible responses from each of 11 experts (440 possible relationships), 28 (6%) were “no opinion,” 134 (30%) were “no expected relationship” and the remaining 278 (63%) indicated an expectation of a relationship. This surprisingly high percentage suggests that the experts individually believed that Hofstede’s culture dimensions can indeed provide insights into differences in ethical judgments. Of the five dimensions, Confucian Dynamism elicited the highest percentage (70%) of expected relationships, while Power Distance showed the lowest (52%). The Confucian Dynamism result is not surprising, given that all of the vignettes were directly related to accounting practice, and that compromising long-term interests for current results is a perennial concern for both accounting and business ethics generally. The second question is whether there is agreement on the direction of this relationship. This is first tested by examining the total responses for each culture dimension across all eight vignettes taken together. Table 2 shows the number and percentage of experts receiving each type (positive, negative or none) of relationship. A positive relationship is defined as one where a higher score on the culture dimension is associated with an evaluation that an action was more ethical. Specifically, positive relationships were those where respondents believed that a masculine, high power distance, strong uncertainty avoidance, individualist, or longterm oriented culture would view an action as ethical. Since 11 experts expressed opinions about eight vignettes, the maximum possible in each row is 88, and perfect agreement on both the existence and direction of a relationship would be indicated by 88 - 0 - 0 or 0 - 0 - 88 row scores. Table 2 shows that there is least disagreement among the experts on the Power Distance and Confucian Dynamism dimensions. Overall, experts felt that short-term oriented, high power distance cultures would evaluate all eight actions as more ethical, but that there is disagreement about the
Nom:
at .05 at IO
.324** .724* .406* -.051* -.249 .639* .326* .514* .339* .415*
AEXI
* Significant ** Significant
AEXP2 AEXP3 AEXP4 AEXPS AEXP6 NEXP7 NEXPI NEXP9 NEXPIO NEXPll
AEXPl
Expert
.421* ,096 -.I70 -0.11 ,238 -.070 ,349; ,073 .335**
AEX2
.328* ,101 .050 .556* .424* .553* .371* .352*
AEX3
AEX4
.369* ,069 .466* .154* .353* .401* ,260
Accounting
-.204 .203 ,187 -.044 ,259 -.lOl
AEX5
Table 1. Pairwise Correlations between Experts (AEXP l-6 were Accounting Faculty, NEXP 7-l 1 were Non-accounting faculty)
.076 .357* ,172 ,134 .I97
AEX6
-.042 .449* ,218 .406*
NEX7
,210 .243 ,079
NEX8
.351* .361*
NEX9
Non-Accounting
,259
NEXIO
NEXll
$ g &T 3
5 fn !z z 8
B @ Z
60
Table 2.
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Vol. 31, No. 1,1996
Expected Relationship Between Cuiture Dimension and Ethical Evaluation
Culture Dimension
Expected Positive Relationship
Expected No Relationship
Masculinity
34(39%)
28(X%)
Power Distance
43(49%)
37(42%)
19(22%)
27(31%) ‘W8%)
Expected Negative Relationship
21(24%)
Don’t Know
3(3%)
5(5%) 5(50/o)
33(38%)
9(10%)
32(36%)
4(5%)
Uncertainty Avoidance Individualism Confucian Dynamism Total
27(31%) 5209%) 175(40%)
17(19%) 134(30%)
lO(lI%) 99@%)
9(10%) W%)
direction of a relationship between ethical sensitivity and Masculinity, Uncertainty Avoidance, and Individualism. Note that even though Power Distance was believed to be least relevant to ethical evaluations, on the occasions when it was believed to be relevant, there was very little disagreement over the direction of its relationship. Because the ethical construct is multidimensional, it is possible that a statement of the type “high power distance cultures are less ethical than low power distance cultures” is an over-simplification. Rather, the five culture dimensions may only be usable for predicting cross-national differences in ethical sensitivity for a given ethical dilemma, or in aparticularprofessional context. Thus it might be possible that one questionable action would be considered less ethical in Japan than in the United States, while another would be considered less ethical in the United States than Japan. To test whether the expected relationships between culture dimensions and ethical sensitivity were specific to each vignette, Table 3 disaggregates Table 2 by vignette. Thus, an “11-O-O” and “OO-l l”cel1 indicates perfect consensus on the existence of a relationship and its direction, while O-l 1-O indicates perfect consensus that no relationship exists. The relevance to cross-cultural ethics research of each vignette may be estimated by the percentage of respondents who felt that there was a relationship between a culture dimension and the ethical evaluation of that vignette. In Vignette 3 (conflict of interest), 27 of the 55 responses (52%) were “no relationship” response. In the other seven vignettes, the percentage of “no relationship” responses was between 24-3 1% suggesting that in general, Hofstede’s culture dimensions were believed by the expert panel to be useful predictors of ethical reasoning. Several fairly strong vignette-specific relationships emerged. In particular, the apparent lack of consensus for Individualism in Table 2 arises not because there was no agreement on the direction of a relationship, but because the direction differed across vignettes; negative relationships in Vignettes 1 (collectability of receivables) and 3 (conflict of interest), and positive relationships in Vignettes 4, (bidding for a risky client), 5 (lying about lowballing), and 8 (underperforming the audit). These results suggest that there was general agreement among the experts that differences between countries along the Power Distance and Confucian Dynamism dimensions are systematically associated with differences in moral judgments in the accounting profession, and that differences along the Individualism dimension are also important, but situation-specific.
Expert Consensus
Note:
4 3
5 2 3 2 5 4
1 8 7 4 2 3
None
4 5
+
Masculinity
2
4 4
I
1
1 5
3
-
by Culture Dimension
4
7 3 8 5
3
7 6
t
0
1 1
1 5 5
0 1
0
0 0
-
4 7
7
4 4
None
High Power Distance
3 6 4
1
1
5
1 2 2 3
4
2 2
None
1
3 6
+
5
4 6 2 3
5
5 3
-
High Uncertainty Avoidance
5
8 7 2 3
1
2 4
t
3
3 3 1 3
3
3 6
None
Individualism
0
0 1 7 5
7
1
6
-
0
0 0 2 3
1
2 2
t
1
1 1 3 0
8
1 2
None
7
JO 9 3 7
2
7 7
-
Confucian Dynamism
Each cell shows the number of experts who expected a relationship between ethical evaluation and culture score in the direction indicated. The greater the net total score at the foot of each column differs from zero, the stronger the overall experts’ beliefs that a relationship existed between a culture dimension and ethical sensitivity. A score listed under the positive column (the + column) indicates that, in general, countries from that end of the continuum of the cultural dimension would view the action as more ethical (e.g., Masculine, High Power Distance and Individualism) while a negative number indicates countries from that end of the continuum of a cultural dimension would view the action as less ethical (e.g., High Uncertainty Avoidance and High Confucian Dynamism).
3) Conflict of Interest 4) Bidding for a Risky Client 5) Lowballing 6) Favors for a Client 7) Underreporting Billable 8) Underperforming the Audit
1) Collectability of Receivables 2) Confidentiality
Table 3.
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R
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IMPLICATIONS AND CONCLUSIONS This note has shown that Hofstede’s five measures of national culture are useful for designing studies which investigate cross-national differences in ethical sensitivity. Using a small sample of international culture experts, and a series of accounting-related vignettes, evidence was found of a systematic relationship between ethical sensitivity and the Power Distance and Confucian Dynamism dimensions for accounting-related ethical issues, and a situation-specific relationship for the Individualism dimension. Our results have several implications for cross-cultural accounting ethics research. First, several guidelines are provided for instrument design. A vignette is likely to be useful to cross-cultural researchers if: (1) it identifies cross-culturally relevant issues, (meaning that experts believed that different cultures would evaluate the morality of the actions differently) and (2) it is reliable (the experts agreed on the direction of the relationship). Vignettes 5 (lying about lowballing) and 6 (favors for a client) had the highest relevance to cross-cultural studies (four of the five culture dimensions had two or fewer ‘no relationship’ responses), and Vignettes 1 (collectability of receivables), 2 (confidentiality), 4 (bidding for a risky client) and 8 (underperforming the audit) had two or fewer ‘no relationship’ responses on three of the five dimensions. At the other extreme, Vignette 7 (underreporting billable hours) was relevant only for Individualism and Confucian Dynamism, and Vignette 3 (confhct of interest) only for Individualism. Turning to agreement among the experts over the direction of the relationships in each vignette, Vignette 4 (bidding for a risky client) elicited the least disagreement (one expert disagreed with the majority opinion on Masculinity, and one on Uncertainty Avoidance) and in vignette 8 (underperforming the audit), one expert disagreed on the Uncertainty Avoidance dimension, and two experts disagreed with the majority on Masculinity. In Vignette 3, there was only a single disagreement on each dimension except Power Distance. Taking both criteria together, Vignettes 4 (bidding for a risky client) and 8 (underperforming the audit) provide good overall relevance and reliability. However, these results suggest that the choice of vignette should be made in the light of the specific cultural dimension(s) of interest. For researchers testing relationships between ethical reasoning and Power Distance, Vignette 6 (favors for a client) is the most suitable, and for Uncertainty Avoidance, Vignette 8 (under-performing the audit). Similarly, for Masculinity, Vignettes 2 (confidentiality), 4 (bidding for a risky client), or 5 (lying about lowballing) are suitable, for Individualism, Vignettes 3 (conflict of interest), 4 (bidding for a risky client), 5 (lying about lowballing) or 8 (underperforming the audit), and for Confucian Dynamism, 4 (bidding for a risky client) 5 (lying about lowballing) or 8 (underperforming the audit). The results also provide guidelines for sample selection. Empirical testing for crosscultural differences in ethical sensitivity in an accounting context should not be conducted on the basis of random choice of convenient countries. Rather, if countries which are short-term oriented and have large power distance are paired with long-term oriented, low power distance cultures, smaller sample sizes should be required to identify statistically significant differences in ethical sensitivity. For example, Malaysia or Indonesia could be paired with Japan. A research design using countries that differ on Power Distance and Confucian Dynamism, (the two strongest dimensions to emerge in this study) might include countries in four categories: high Power Distance/Long Term Orientation scoring countries (e.g., India, Hong Kong and Thailand), low Power Distance/ Long Term Orientation (e.g., the Netherlands), high Power Distance/ Short Term Orientation (the Philipines) and low Power Distance/Short Term Orientation
Cross-Cultural Accounting Ethics Research
63
and Great Britain). Results of such country studies would be a valuable addition to an emerging body of accounting ethics work including data from France, Norway, and the U.S. (Schultz, Johnson, Morris and Drynes, 1993), Nigeria and the U.S. (Tsalikis and Nwachukwu, 1991), and Japan, Latin America, and the U.S. (Cohen, Pant, and Sharp, 1995). The results of this study also suggest the need for a more systematic understanding of ethical issues (e.g., which issues are most likely found in an international auditing setting). The consensus on the aggressive bidding Vignette 4 implies these Western-oriented experts perceive an effect of culture on this issue. However, approximately one third of the experts had no opinion of the relationship of culture to the serious breach of duty in underperforming the audit. It is likely that much of the firm’s client generation activity is done at headquarters while the audit performance tasks occur at the local operating level. Therefore, a better understanding of the relevance of the ethical issues being investigated will influence the utility of international ethics research. In general, the use of vignettes in international research can benefit from more careful attention. For example, to the extent that the relationship between individualism and masculinity and ethical sensitivity are strong but situationspecific, further research is needed to explore what aspect of content of the vignettes taps the individualism and masculinity dimensions. This could be done by careful design of vignettes to tap into specific culture dimensions. The results are subject to a number of limitations. First, the small sample used in the study perhaps limits its generalizability, even though each respondent was an expert in his/her field. Second, the vignettes were only in auditing and were developed from a western cultural perspective. A future study could examine the usefulness of Hofstede’s cultural dimensions in different accounting settings (e.g., managerial, tax) with vignettes developed from a multicultural perspective. Third, the measures of consensus were limited by the absence of a definition of morality. Since the ethical construct is multidimensional, a multidimensional approach might provide greater construct reliability (Flory, Philips, Reidenbach and Robin, 1992). Finally, environmental and legal variables may affect ethical decision making (Wines and Napier, 1992). Future studies will need to control for these variables when investigating the effect of culture on international decision making. Despite the limitations, the results suggest several avenues for future research. First, the generalizability of the relationships between the cultural dimensions and ethical evaluations should be tested in several countries, with other vignettes, and in professional contexts outside accounting. Biases in ethnocentrically developed theories would be revealed in non-Anglo/ American settings. Second, hypotheses should explore the relationship between each culture dimension and ethical behavior. Choosing countries which differ on only one dimension, or choosing a set of countries designed to isolate characteristics and their interactions will aid researchers in developing and testing theory underpinning the relationship between culture and ethics. Finally, future research in international accounting ethics can benefit from linkage with other empirical ethics research streams. In particular, the relationship between culture and moral development could provide valuable insights into the cross-cultural generalizability of models of moral development. (e.g., Canada
Acknowledgment: We would like to acknowledge the helpful comments provided by participants at our presentation at the 1993 Academy of International Business Annual Meeting, the 1994 American Accounting Association Northeast Meeting, and the 1994 Accounting, Behavior and Organization Annual Meeting.
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APPENDIX
A: VIGNEllE
Vignette #l.
Collectability
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DESCRIPTIONS of Receivables
An audit client who also receives considerable management advisory services (MAS) billings has a difference of opinion with the auditor as to when to recognize certain revenue transactions in which there is some uncertainty regarding the collectability of the receivables. Recently the client has been approached by a competitor soliciting auditing and MAS services. The firm has been a client for 20 years but has recently had a change in management. Action: The partner in charge of the engagement accepts the client’s interpretation of the receivables. Vignette #2.
Confidentiality
CPA Z serves as the auditor for Widget & Co., a privately held firm. Widget’s market share has declined drastically, and Z knows that Widget will soon be bankrupt. Another of Z’s audit clients is Solid Company. While auditing Solid’s accounts receivable, Z finds that Widget & Co. owes Solid $200,000. This represents 10 percent of Solid’s receivables. Action: CPA Z warns the client, Solid Company, about Widget’s impending bankruptcy. Vignette #3.
Conflict of Interest
CPA Z, in addition to practicing public accounting, is heavily involved in community activities. Z is especially well known for the passionate promotion of the local symphony orchestra. In preparation for a proposal to an international funding organization, the president of the symphony has asked Z to perform the initial audit. Action: CPA Z accepts the audit engagement. Vignette #4.
Bidding for a Risky Client
The largest client of a competitor appears to be unhappy with its auditors. Upon investigation, a partner finds that the client’s management puts a heavy emphasis on having an upward trend in reported earnings. The compensation of top executives is based in large part on the earnings figure and top management takes an aggressive approach to recognizing earnings. Action: The partner recommends bidding for this client. This will make the partner the leading revenue generator in the firm. Vignette #5.
Lying about Lowballing
A partner is developing a bid for a new client. The partner deliberately sets the bid significantly below cost. The partner knows 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: In response to a question from the prospective client, the partner indicates that fees should not be expected to rise significantly in the foreseeable future. Vignette #6.
Favors for a Client
A partner has had several meetings with a potential client. The potential client’s owner asks the partner to set up an interview for his son as a staff auditor in another office
Cross-Cultural Accounting Ethics Research
65
of the firm. Although the son is bright, it is unclear whether he would have otherwise been given an offer. Action: The partner recommends making the potential client’s son an offer. Vignette #7.
Underreporting
Billable Hours
A public accounting firm has recently acquired a new client with a very low bid. The partner suggests the audit hour budget for inventory-related items will be 100 hours. The senior’s experience with similar clients suggests that in order to have reasonable assurances of no material errors or irregularities, the audit will take a minimum of 150 hours. Performance evaluation is based in part on efficiency. Action: The senior accepts the budget as is. The senior’s plan is to do all necessary work to provide reasonable assurance but to underreport actual hours worked. Vignette #8.
Underperforming
the Audit
Vignette is the same as #7. Action: The senior accepts the budget as is. Subsequently, in cases where judgment is required to determine the number of audit procedures, the senior performs fewer procedures.
NOTES 1.
2.
3.
For the more pragmatic purpose of identifying the difference between two given countries of interest, the design simply becomes the classic one of first deciding the smallest crossnational difference one needs to identify, and then, having estimated the variance of the variables of interest, calculating the sample size necessary to detect the difference of the required size at the desired confidence level. However, these culture differences do not purport to be complete descriptors of ethical differences. Our intention here is to explore the extent to which these culture measures can be used to predict differences in ethical sensitivity. After all, Hofstede’s dimensions are the only cross-cultural variables which have been carefully validated, and for which measures are readily available for over fifty countries. We did not provide a definition of “ethical” in the survey. Since it is well known that there are significant individual differences in ethical reasoning (Kohlberg, 1976) the definition of “ethical” is likely to differ among experts, reducing the level of consensus.
Armstrong, Mary Beth. 1985. Internationalization of the Professional Ethic by CertiJied Public Accounting: A Multidimensional Approach. Unpublished doctoral dissertation, University of Southern California. Child, J. 1981. “Culture, Contingency and Capitalism in the Cross-national Study of Organizations.” Pp. 303-356 in Research in Organizational Behavior, Vol. 3, edited by L.L. Cummings and B.M. Staw. Greenwich, CT: JAI Press. Claypool, Gregory A., David F. Fetyko and Michael A. Pearson. 1990. “Reacting to Ethical Dilemmas: A Study Pertaining to Certified Public Accountants,” Journal of Business Ethics, (September): 687-706. Cohen, Jeffrey, Laurie W. Pant and David J. Sharp. 1992. “Cultural and Socioeconomic Constraints on International Codes of Ethics: Lessons From Accounting,” Journal of Business Ethics, (September): 687-700. ~. 1993. “Culture-based Ethical Conflicts Confronting Multinational Accounting Firms,” Accounting Horizons, (September): 1-13.
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1995. “An International Comparison of Moral Constructs Underlying Auditors’ Ethical Judgments,” Pp. 97-126 in Research in Accounting Ethics. Greenwich, CT: JAI Press. Flory, Steven, Thomas J. Phillips, R. Eric Reidenbach and Donald Robin. 1992. “A Multidimensional Analysis of Selected Ethical Issues in Accounting,” The Accounting Review, (April): 284-302. Hampden-Turner, Charles and Alfons Trompenaars. 1993. i%e Seven Cultures of Capitalism. New York: Doubleday. Hofstede, Geert. 1980. Culture’s Consequences: International Differences in Work-related Values. Beverly Hills, CA: Sage. ~. 1991. Cultures and Organizations: Software of the Mind. London: McGraw-Hill. Hofstede, Geert and Michael Bond. 1988. “The Confucian Connection: From Cultural Roots to Economic Growth,” Organization Dynamics, (Spring): 5-21. Kluckhohn, F.R. and F.L. Stodtbeck. 1961. Variations in Value Orientations. New York: Row, Peterson & Co. Langlois, Catherine C. and Bodo B. Schlegelmilch. 1990. “Do Corporate Codes of Conduct Reflect National Character? Evidence from Europe and the United States,” Journal of International Business Studies, (Fourth Quarter): 519-539. Loeb, Stephen E. 1971. “A Survey of Ethical Behavior in the Accounting Profession,” Journal of Accounting Research, (Autumn): 287-306. Maznevski, Martha, S. Nason and J. DiStefano. 1993. Fourteen Faces of Culture: A New Instrument for Understanding Cultural Differences. Paper presented at the Annual Meeting of the Academy of International Business, Maui, October. Schultz, Joseph, J.Jr., Douglas A. Johnson, Deigan Morris and Sverre Drynes. 1993. “An Investigation of the Reporting of Questionable Acts in an International Setting,” Journal of Accounting Research, (Supplement): 75-103. Siegal, S. and N.J. Castellan. 1988. Nonparametric Statistics for the Behavioral Sciences, 2nd ed. New York: McGraw-Hill. Tsalitkis, John and Osita Nwachukwu. 1991. “A Comparison of Nigerian to American Views of Bribery and Extortion in International Commerce,” Journal of Business Ethics, (December): 85-98. Vogel, David. 1992. “The Globalization of Business Ethics,” California Management Review, (Fall): 3048. Wines, William A. and Nancy K. Napier. 1992. “Towards an Understanding of Cross-cultural Ethics: A Tentative Model,” Journal of Business Ethics, (November): 83 1-841.
A Methodological Note on Cross-Cultural Accounting Ethics Research Jeffrey R. Cohen, Laurie W. Pant, and David J. Sharp Boston College, Suffolk University, and The University of Western Ontario
Key Words:
Research
Design; Cross-Culturab
Methodology;
Hofstede;
Ethics; Behavioral
Abstract:
Predicting international differences in ethical behavior is important for multinational accounting firms. This note reports an empirical test of the usefulness of Hofstedekfive dimensions of culture to predict cross-cultural dfferences in ethical sensitivity. A small-sample survey of academic experts in cross-cultural management research in accounting and other business disciplines demonstrated that Power Distance and Confucian Dynamism were expected to be consistently related to ethical judgment in a series of eight accounting-related ethical vignettes, while Individualism showed strong effects, its direction depended on the nature of the ethical dilemma described in the vignette. Over all of the experts, there was statistically significant consensus. Implications of thefindingsfor the research design of cross-cultural accounting ethics studies is also discussed.
In the case of international studies, cross-cultural differences in attitudes and beliefs are invariably of interest. Identification of these differences is important as a practical matter for managers of international firms. Differences in beliefs as to what constitutes ethical behavior affect attitudes towards unethical behavior, and could, if translated into managerial action, create problems (for American managers, compliance with the Foreign Corrupt Practices Act, for example). A systematic understanding of crosscultural differences could provide guidelines for managers seeking to implement their firms’ code of conduct internationally (Cohen, Pant and Sharp, 1992; 1993), and even indicate the extent to which a formal code is an effective means by which managerial decisions can be guided by a moral framework (Vogel, 1992; Langlois and Schlegelmilch, 1990). Since ethical values are part of culture (Hofstede, 1991), this paper explores whether Hofstede’s five well-known measures of culture can be used to predict ethical sensitivity, defined as the evaluation of, or belief concerning, the morality of a particular action. Specifically, in this note, results are reported of small-sample survey of experts on national culture to demonstrate that these measures of culture can be used to develop Direct all correspondence Management, Department
to: Jeffrey R. Cohen, of Accounting, Chestnut
Boston College, The Wallace Hill, MA 02167-3808.
E. Carroll
School
of
The International Journal of Accounting, Vol. 31, No. 1, pp. 55-66. ISSN: 0020-7063. All rights of reproduction in any form reserved. Copyright @ 1996 University of Illinois
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directional hypotheses concerning cross-cultural is followed by a discussion of the consequences cultural accounting vignette-based studies.
Vol. 31, No. 1,1996
differences in ethical perceptions. This of the findings for the design of cross-
USING CULTURE MEASURES TO PREDICT ETHICAL REASONING A systematic prediction of cross-cultural differences in ethical sensitivity requires a theory of cross-cultural value differences. Enormous progress has been made in this respect since Child (1981) wrote that “the employment of the culture concept has been an excuse for intellectual laziness, whereby “culture” has often served simply as a synonym for “nation” without any further theoretical grounding. In effect, national differences found in characteristics of organizations or their members have been ascribed to . . . national differences, period.” While this perhaps understates the contribution of early cross-cultural research, notably Kluckhohn and Strodtbeck (1961), the need Child identified was addressed in the seminal work of Hofstede (1980) who first identified and measured four dimensions of national culture on a large scale. (More recently, Maznevski, Nason and DiStefano, 1993 have tested a lbcomponent measure based on Kluckhohn and Strodtbeck’s interview protocol; Hampden-Turner and Trompenaars, 1993 have proposed a 7-dimension framework.) If any of these measures are useful for predicting the magnitude of differences in ethical sensitivity, they can be used in research designs to improve sample selection. One important design problem in any cross-cultural research is statistical power, that is, the ability to identify correctly a cross-cultural difference where one exists, and to fail correctly to find one where one does not exist, within a cost-effective sample size. All other things equal, if a theory predicts a larger difference in ethical sensitivity between countries A and B than between C and D, then the same power can be achieved with a smaller sample size from A and B than from C and D. Thus for theory testing purposes, a higher power can be achieved by sampling from countries whose difference is expected to be large.’ This methodological note considers how to use Hofstede’s measures of culture to identify countries with the greatest differences in ethical sensitivities. Hofstede (1980) defined culture as “the collective programming of the mind which distinguishes the members of one human group from another” (p. 19). He argues that values, that is, broad tendencies to prefer certain states over others, lie at the core of culture differences, and include differences in feelings of evil vs. good, (1991, p. 8). In his 1980 study and the subsequent replication which attempted to remove the western cultural bias of the original research design (Hofstede and Bond, 1988), live dimensions of culture were identified, and measured in up to fifty countries.2 These five dimensions are: (I) Power Distance (the extent to which power is unequally shared in a society), (2) Uncertainty Avoidance (the collective need in a culture for security and the general level of anxiety created by the uncertainties of life, (3) Individualism/ Collectivism (the relationship of an individual to his or her group, and the relative importance in the culture of the individual relative to his or her group membership), (4) Masculinity/ Femininity (the extent to which a culture values assertive “masculine” rather than supportive, nurturing “feminine” values), and (5) Confucian Dynamism (the extent to which a culture is long-term or short-term oriented). The live constructs are considerably more complex than the very brief descriptions provided here. For a more complete, authoritative description of all five dimensions, see Hofstede (1991).
Cross-Cultural Accounting Ethics Research
A SMALL-SAMPLE
57
SURVEY
Hofstede’s (1991) five dimensions of culture were used to explore the relationship between culture and the evaluation of possibly questionable actions in eight vignettes (See Appendix A for a description of the vignettes). Since culture is a very complex construct, and the five dimensions identified by Hofstede are far from complete descriptions of cultural differences, it is useful to explore whether each of the five culture dimensions has predictive power vis-a-vis ethical choices. Eight vignettes were adapted from prior ethics research (Claypool, Fetyko and Pearson, 1990; Armstrong, 1985; Loeb, 1971) and through a pretest with 22 practicing auditors from the United States and Europe, who were asked in a mail survey to list ethical situations and dilemmas that could arise in the course of auditing clients or in the work environment of the public accounting profession. The vignettes were then distributed to 11 auditors of another large multinational audit firm, who were asked to evaluate their realism and plausibility and to provide open-ended input on how they might be improved. The eight vignettes, while capturing ethical dilemmas pertinent to current audit practice (to enhance content validity), were devised also to reflect cultural differences and various modes of moral reasoning. For example, the second vignette describes an action in which an accounting firm breaches the professional code of conduct by disclosing to a client information of the impending bankruptcy of another client who owes the first client a considerable sum of money. A collectivist culture might view this action in terms of loyalty and concern for the client which would otherwise be seriously harmed by the bankruptcy. Accountants from a collectivist culture might moderate their view of the morality of this action, compared to those of an individualist culture. Likewise, the dilemma carries overtones of uncertainty avoidance, in that a rule-oriented high uncertainty avoidance culture might define “ethical”solely by whether or not the action is proscribed in a code of conduct. At the same time, a respondent using teleological reasoning could argue that the firm’s (and the healthy client’s) best interest is served by advising of the unavoidable impending bankruptcy, even though it breaches the code of professional conduct. A small sample of academic experts on international culture was surveyed concerning their views on the existence of a relationship between culture dimensions and the ethical evaluation of each of the eight vignettes. Experts were necessary for this purpose because it was essential that the respondents be intimately familiar with the complexity of the five culture dimensions. A survey of the cross-cultural management and international accounting literature identified fourteen academics (eight accountants and six nonaccountants, three U.S. and 11 non-U.S.) who were active in international cross-cultural research using Hofstede’s framework. All are well-known, highly published researchers. Each was personally contacted to take part in the study. One instrument was returned unanswered due to subsequent lack of time, leaving 13 possible respondents. We received responses from 11 experts representing an effective response rate of 85%. The respondents’ functional areas included marketing and organizational behavior; six were known to have an accounting background. To ensure that as far as possible each expert was completely familiar with the meaning of the five dimensions, each was provided with a description of them taken directly from Hofstede (1991). They were asked to review each of the eight vignettes and to state their expectation of the direction of the relationship if any between each of the five cultural dimensions and the morality of the action. (Note that this requires each
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expert to apply his/ her own definition of “morality”). For example, in Vignette 1, the action states “The partner in charge of the engagement accepts the client’s interpretation of the receivables”. The expert was asked to respond to the following question: “I would expect a Masculine culture to view this action as more ethical/about the same/less ethical/ I don’t know, than a Feminine culture.” This was repeated for each of the five cultural variables. Thus, in total, 40 possible expected relationships (five for each of the eight vignettes) were elicited from each subject. “More ethical” was coded as 3, “About the same” as 2, and “Less ethical” as 1. “I don’t know” and blank responses were both coded as missing values. Siegal and Castellan (1988, p. 267) state that Kendall’s coefficient of concordance is an appropriate measure of consensus that “determines the degree of agreement among the raters in their judgments.” Over all 11 subjects, Kendall’s W = .119 @ < .Ol), and the overall mean pairwise rank correlation was 0.28 (p < .Ol). Table 1 shows the pairwise Spearman rank correlations between each respondent for the 40 responses. Twentyfour of the 55 correlations were significant at the 5% level, and two more at the 10% level. Given the extreme cultural diversity of the sample, there was a moderate degree of consensus among experts3 The means of each expert’s correlations ranged from 0.06 to 0.37, indicating that the judgments of some experts differed from the group as a whole more than others. In reviewing the results in more detail, two questions are examined. The first is whether, in the view of the experts, there is a relationship between culture dimensions and ethical evaluations. The percentage of respondents who indicated a relationship (whether positive or negative) provides a measure of this. Overall, of the forty possible responses from each of 11 experts (440 possible relationships), 28 (6%) were “no opinion,” 134 (30%) were “no expected relationship” and the remaining 278 (63%) indicated an expectation of a relationship. This surprisingly high percentage suggests that the experts individually believed that Hofstede’s culture dimensions can indeed provide insights into differences in ethical judgments. Of the five dimensions, Confucian Dynamism elicited the highest percentage (70%) of expected relationships, while Power Distance showed the lowest (52%). The Confucian Dynamism result is not surprising, given that all of the vignettes were directly related to accounting practice, and that compromising long-term interests for current results is a perennial concern for both accounting and business ethics generally. The second question is whether there is agreement on the direction of this relationship. This is first tested by examining the total responses for each culture dimension across all eight vignettes taken together. Table 2 shows the number and percentage of experts receiving each type (positive, negative or none) of relationship. A positive relationship is defined as one where a higher score on the culture dimension is associated with an evaluation that an action was more ethical. Specifically, positive relationships were those where respondents believed that a masculine, high power distance, strong uncertainty avoidance, individualist, or longterm oriented culture would view an action as ethical. Since 11 experts expressed opinions about eight vignettes, the maximum possible in each row is 88, and perfect agreement on both the existence and direction of a relationship would be indicated by 88 - 0 - 0 or 0 - 0 - 88 row scores. Table 2 shows that there is least disagreement among the experts on the Power Distance and Confucian Dynamism dimensions. Overall, experts felt that short-term oriented, high power distance cultures would evaluate all eight actions as more ethical, but that there is disagreement about the
Nom:
at .05 at IO
.324** .724* .406* -.051* -.249 .639* .326* .514* .339* .415*
AEXI
* Significant ** Significant
AEXP2 AEXP3 AEXP4 AEXPS AEXP6 NEXP7 NEXPI NEXP9 NEXPIO NEXPll
AEXPl
Expert
.421* ,096 -.I70 -0.11 ,238 -.070 ,349; ,073 .335**
AEX2
.328* ,101 .050 .556* .424* .553* .371* .352*
AEX3
AEX4
.369* ,069 .466* .154* .353* .401* ,260
Accounting
-.204 .203 ,187 -.044 ,259 -.lOl
AEX5
Table 1. Pairwise Correlations between Experts (AEXP l-6 were Accounting Faculty, NEXP 7-l 1 were Non-accounting faculty)
.076 .357* ,172 ,134 .I97
AEX6
-.042 .449* ,218 .406*
NEX7
,210 .243 ,079
NEX8
.351* .361*
NEX9
Non-Accounting
,259
NEXIO
NEXll
$ g &T 3
5 fn !z z 8
B @ Z
60
Table 2.
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Expected Relationship Between Cuiture Dimension and Ethical Evaluation
Culture Dimension
Expected Positive Relationship
Expected No Relationship
Masculinity
34(39%)
28(X%)
Power Distance
43(49%)
37(42%)
19(22%)
27(31%) ‘W8%)
Expected Negative Relationship
21(24%)
Don’t Know
3(3%)
5(5%) 5(50/o)
33(38%)
9(10%)
32(36%)
4(5%)
Uncertainty Avoidance Individualism Confucian Dynamism Total
27(31%) 5209%) 175(40%)
17(19%) 134(30%)
lO(lI%) 99@%)
9(10%) W%)
direction of a relationship between ethical sensitivity and Masculinity, Uncertainty Avoidance, and Individualism. Note that even though Power Distance was believed to be least relevant to ethical evaluations, on the occasions when it was believed to be relevant, there was very little disagreement over the direction of its relationship. Because the ethical construct is multidimensional, it is possible that a statement of the type “high power distance cultures are less ethical than low power distance cultures” is an over-simplification. Rather, the five culture dimensions may only be usable for predicting cross-national differences in ethical sensitivity for a given ethical dilemma, or in aparticularprofessional context. Thus it might be possible that one questionable action would be considered less ethical in Japan than in the United States, while another would be considered less ethical in the United States than Japan. To test whether the expected relationships between culture dimensions and ethical sensitivity were specific to each vignette, Table 3 disaggregates Table 2 by vignette. Thus, an “11-O-O” and “OO-l l”cel1 indicates perfect consensus on the existence of a relationship and its direction, while O-l 1-O indicates perfect consensus that no relationship exists. The relevance to cross-cultural ethics research of each vignette may be estimated by the percentage of respondents who felt that there was a relationship between a culture dimension and the ethical evaluation of that vignette. In Vignette 3 (conflict of interest), 27 of the 55 responses (52%) were “no relationship” response. In the other seven vignettes, the percentage of “no relationship” responses was between 24-3 1% suggesting that in general, Hofstede’s culture dimensions were believed by the expert panel to be useful predictors of ethical reasoning. Several fairly strong vignette-specific relationships emerged. In particular, the apparent lack of consensus for Individualism in Table 2 arises not because there was no agreement on the direction of a relationship, but because the direction differed across vignettes; negative relationships in Vignettes 1 (collectability of receivables) and 3 (conflict of interest), and positive relationships in Vignettes 4, (bidding for a risky client), 5 (lying about lowballing), and 8 (underperforming the audit). These results suggest that there was general agreement among the experts that differences between countries along the Power Distance and Confucian Dynamism dimensions are systematically associated with differences in moral judgments in the accounting profession, and that differences along the Individualism dimension are also important, but situation-specific.
Expert Consensus
Note:
4 3
5 2 3 2 5 4
1 8 7 4 2 3
None
4 5
+
Masculinity
2
4 4
I
1
1 5
3
-
by Culture Dimension
4
7 3 8 5
3
7 6
t
0
1 1
1 5 5
0 1
0
0 0
-
4 7
7
4 4
None
High Power Distance
3 6 4
1
1
5
1 2 2 3
4
2 2
None
1
3 6
+
5
4 6 2 3
5
5 3
-
High Uncertainty Avoidance
5
8 7 2 3
1
2 4
t
3
3 3 1 3
3
3 6
None
Individualism
0
0 1 7 5
7
1
6
-
0
0 0 2 3
1
2 2
t
1
1 1 3 0
8
1 2
None
7
JO 9 3 7
2
7 7
-
Confucian Dynamism
Each cell shows the number of experts who expected a relationship between ethical evaluation and culture score in the direction indicated. The greater the net total score at the foot of each column differs from zero, the stronger the overall experts’ beliefs that a relationship existed between a culture dimension and ethical sensitivity. A score listed under the positive column (the + column) indicates that, in general, countries from that end of the continuum of the cultural dimension would view the action as more ethical (e.g., Masculine, High Power Distance and Individualism) while a negative number indicates countries from that end of the continuum of a cultural dimension would view the action as less ethical (e.g., High Uncertainty Avoidance and High Confucian Dynamism).
3) Conflict of Interest 4) Bidding for a Risky Client 5) Lowballing 6) Favors for a Client 7) Underreporting Billable 8) Underperforming the Audit
1) Collectability of Receivables 2) Confidentiality
Table 3.
$ 8 !z 0 5
m 9 ::
2
z z
R
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IMPLICATIONS AND CONCLUSIONS This note has shown that Hofstede’s five measures of national culture are useful for designing studies which investigate cross-national differences in ethical sensitivity. Using a small sample of international culture experts, and a series of accounting-related vignettes, evidence was found of a systematic relationship between ethical sensitivity and the Power Distance and Confucian Dynamism dimensions for accounting-related ethical issues, and a situation-specific relationship for the Individualism dimension. Our results have several implications for cross-cultural accounting ethics research. First, several guidelines are provided for instrument design. A vignette is likely to be useful to cross-cultural researchers if: (1) it identifies cross-culturally relevant issues, (meaning that experts believed that different cultures would evaluate the morality of the actions differently) and (2) it is reliable (the experts agreed on the direction of the relationship). Vignettes 5 (lying about lowballing) and 6 (favors for a client) had the highest relevance to cross-cultural studies (four of the five culture dimensions had two or fewer ‘no relationship’ responses), and Vignettes 1 (collectability of receivables), 2 (confidentiality), 4 (bidding for a risky client) and 8 (underperforming the audit) had two or fewer ‘no relationship’ responses on three of the five dimensions. At the other extreme, Vignette 7 (underreporting billable hours) was relevant only for Individualism and Confucian Dynamism, and Vignette 3 (confhct of interest) only for Individualism. Turning to agreement among the experts over the direction of the relationships in each vignette, Vignette 4 (bidding for a risky client) elicited the least disagreement (one expert disagreed with the majority opinion on Masculinity, and one on Uncertainty Avoidance) and in vignette 8 (underperforming the audit), one expert disagreed on the Uncertainty Avoidance dimension, and two experts disagreed with the majority on Masculinity. In Vignette 3, there was only a single disagreement on each dimension except Power Distance. Taking both criteria together, Vignettes 4 (bidding for a risky client) and 8 (underperforming the audit) provide good overall relevance and reliability. However, these results suggest that the choice of vignette should be made in the light of the specific cultural dimension(s) of interest. For researchers testing relationships between ethical reasoning and Power Distance, Vignette 6 (favors for a client) is the most suitable, and for Uncertainty Avoidance, Vignette 8 (under-performing the audit). Similarly, for Masculinity, Vignettes 2 (confidentiality), 4 (bidding for a risky client), or 5 (lying about lowballing) are suitable, for Individualism, Vignettes 3 (conflict of interest), 4 (bidding for a risky client), 5 (lying about lowballing) or 8 (underperforming the audit), and for Confucian Dynamism, 4 (bidding for a risky client) 5 (lying about lowballing) or 8 (underperforming the audit). The results also provide guidelines for sample selection. Empirical testing for crosscultural differences in ethical sensitivity in an accounting context should not be conducted on the basis of random choice of convenient countries. Rather, if countries which are short-term oriented and have large power distance are paired with long-term oriented, low power distance cultures, smaller sample sizes should be required to identify statistically significant differences in ethical sensitivity. For example, Malaysia or Indonesia could be paired with Japan. A research design using countries that differ on Power Distance and Confucian Dynamism, (the two strongest dimensions to emerge in this study) might include countries in four categories: high Power Distance/Long Term Orientation scoring countries (e.g., India, Hong Kong and Thailand), low Power Distance/ Long Term Orientation (e.g., the Netherlands), high Power Distance/ Short Term Orientation (the Philipines) and low Power Distance/Short Term Orientation
Cross-Cultural Accounting Ethics Research
63
and Great Britain). Results of such country studies would be a valuable addition to an emerging body of accounting ethics work including data from France, Norway, and the U.S. (Schultz, Johnson, Morris and Drynes, 1993), Nigeria and the U.S. (Tsalikis and Nwachukwu, 1991), and Japan, Latin America, and the U.S. (Cohen, Pant, and Sharp, 1995). The results of this study also suggest the need for a more systematic understanding of ethical issues (e.g., which issues are most likely found in an international auditing setting). The consensus on the aggressive bidding Vignette 4 implies these Western-oriented experts perceive an effect of culture on this issue. However, approximately one third of the experts had no opinion of the relationship of culture to the serious breach of duty in underperforming the audit. It is likely that much of the firm’s client generation activity is done at headquarters while the audit performance tasks occur at the local operating level. Therefore, a better understanding of the relevance of the ethical issues being investigated will influence the utility of international ethics research. In general, the use of vignettes in international research can benefit from more careful attention. For example, to the extent that the relationship between individualism and masculinity and ethical sensitivity are strong but situationspecific, further research is needed to explore what aspect of content of the vignettes taps the individualism and masculinity dimensions. This could be done by careful design of vignettes to tap into specific culture dimensions. The results are subject to a number of limitations. First, the small sample used in the study perhaps limits its generalizability, even though each respondent was an expert in his/her field. Second, the vignettes were only in auditing and were developed from a western cultural perspective. A future study could examine the usefulness of Hofstede’s cultural dimensions in different accounting settings (e.g., managerial, tax) with vignettes developed from a multicultural perspective. Third, the measures of consensus were limited by the absence of a definition of morality. Since the ethical construct is multidimensional, a multidimensional approach might provide greater construct reliability (Flory, Philips, Reidenbach and Robin, 1992). Finally, environmental and legal variables may affect ethical decision making (Wines and Napier, 1992). Future studies will need to control for these variables when investigating the effect of culture on international decision making. Despite the limitations, the results suggest several avenues for future research. First, the generalizability of the relationships between the cultural dimensions and ethical evaluations should be tested in several countries, with other vignettes, and in professional contexts outside accounting. Biases in ethnocentrically developed theories would be revealed in non-Anglo/ American settings. Second, hypotheses should explore the relationship between each culture dimension and ethical behavior. Choosing countries which differ on only one dimension, or choosing a set of countries designed to isolate characteristics and their interactions will aid researchers in developing and testing theory underpinning the relationship between culture and ethics. Finally, future research in international accounting ethics can benefit from linkage with other empirical ethics research streams. In particular, the relationship between culture and moral development could provide valuable insights into the cross-cultural generalizability of models of moral development. (e.g., Canada
Acknowledgment: We would like to acknowledge the helpful comments provided by participants at our presentation at the 1993 Academy of International Business Annual Meeting, the 1994 American Accounting Association Northeast Meeting, and the 1994 Accounting, Behavior and Organization Annual Meeting.
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APPENDIX
A: VIGNEllE
Vignette #l.
Collectability
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DESCRIPTIONS of Receivables
An audit client who also receives considerable management advisory services (MAS) billings has a difference of opinion with the auditor as to when to recognize certain revenue transactions in which there is some uncertainty regarding the collectability of the receivables. Recently the client has been approached by a competitor soliciting auditing and MAS services. The firm has been a client for 20 years but has recently had a change in management. Action: The partner in charge of the engagement accepts the client’s interpretation of the receivables. Vignette #2.
Confidentiality
CPA Z serves as the auditor for Widget & Co., a privately held firm. Widget’s market share has declined drastically, and Z knows that Widget will soon be bankrupt. Another of Z’s audit clients is Solid Company. While auditing Solid’s accounts receivable, Z finds that Widget & Co. owes Solid $200,000. This represents 10 percent of Solid’s receivables. Action: CPA Z warns the client, Solid Company, about Widget’s impending bankruptcy. Vignette #3.
Conflict of Interest
CPA Z, in addition to practicing public accounting, is heavily involved in community activities. Z is especially well known for the passionate promotion of the local symphony orchestra. In preparation for a proposal to an international funding organization, the president of the symphony has asked Z to perform the initial audit. Action: CPA Z accepts the audit engagement. Vignette #4.
Bidding for a Risky Client
The largest client of a competitor appears to be unhappy with its auditors. Upon investigation, a partner finds that the client’s management puts a heavy emphasis on having an upward trend in reported earnings. The compensation of top executives is based in large part on the earnings figure and top management takes an aggressive approach to recognizing earnings. Action: The partner recommends bidding for this client. This will make the partner the leading revenue generator in the firm. Vignette #5.
Lying about Lowballing
A partner is developing a bid for a new client. The partner deliberately sets the bid significantly below cost. The partner knows 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: In response to a question from the prospective client, the partner indicates that fees should not be expected to rise significantly in the foreseeable future. Vignette #6.
Favors for a Client
A partner has had several meetings with a potential client. The potential client’s owner asks the partner to set up an interview for his son as a staff auditor in another office
Cross-Cultural Accounting Ethics Research
65
of the firm. Although the son is bright, it is unclear whether he would have otherwise been given an offer. Action: The partner recommends making the potential client’s son an offer. Vignette #7.
Underreporting
Billable Hours
A public accounting firm has recently acquired a new client with a very low bid. The partner suggests the audit hour budget for inventory-related items will be 100 hours. The senior’s experience with similar clients suggests that in order to have reasonable assurances of no material errors or irregularities, the audit will take a minimum of 150 hours. Performance evaluation is based in part on efficiency. Action: The senior accepts the budget as is. The senior’s plan is to do all necessary work to provide reasonable assurance but to underreport actual hours worked. Vignette #8.
Underperforming
the Audit
Vignette is the same as #7. Action: The senior accepts the budget as is. Subsequently, in cases where judgment is required to determine the number of audit procedures, the senior performs fewer procedures.
NOTES 1.
2.
3.
For the more pragmatic purpose of identifying the difference between two given countries of interest, the design simply becomes the classic one of first deciding the smallest crossnational difference one needs to identify, and then, having estimated the variance of the variables of interest, calculating the sample size necessary to detect the difference of the required size at the desired confidence level. However, these culture differences do not purport to be complete descriptors of ethical differences. Our intention here is to explore the extent to which these culture measures can be used to predict differences in ethical sensitivity. After all, Hofstede’s dimensions are the only cross-cultural variables which have been carefully validated, and for which measures are readily available for over fifty countries. We did not provide a definition of “ethical” in the survey. Since it is well known that there are significant individual differences in ethical reasoning (Kohlberg, 1976) the definition of “ethical” is likely to differ among experts, reducing the level of consensus.
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