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Financial reporting decisions are influenced by environmental and individual factors. One environmental factor is the example set by management. Research has shown that the tone at the top is related to financial reporting decisions. However, this does not take into consideration that ethical cues from an employee's supervisor might also be relevant. On an individual basis, people who make unethical financial reporting decisions do not appear to be bad or evil people. So, why do these seemingly “good” people make these decisions? The theory of self-concept maintenance (Mazar et al., 2008) posits that individuals balance the desire to gain by behaving unethically with the desire to maintain a positive self-image by behaving ethically. How one balances these is based on one's ability to rationalize an action as honest, with decisions seen as having an ethical component being more difficult to rationalize. Findings indicate that having one person in a leadership position demonstrate a commitment to ethical behavior is related to more ethical financial reporting decisions, whether that person is at the top or closer to the middle. Additionally, a strong tone at the top is related to perceiving a situation is an ethical dilemma while a strong tune in the middle is not. Last, the authors find that a stronger perception that a situation is an ethical dilemma is associated with more ethical financial reporting decisions when the tune in the middle is controlled for, but not when the tone at the top is controlled for.

The purpose of this paper is to examine the relationship between auditors' perception of their firm's tone at the top and attributes of their professional environment and their job satisfaction.

Research hypotheses are developed based on prior research including research on social judgment theory. Structural equation modeling is used to analyze the data collected through a survey of auditors.

The results show that the tone at the top affects job autonomy and organizational‐professional conflict. Each of these variables directly or indirectly affects job satisfaction. This paper also provides evidence that the tone at the top filters down to at least the senior rank.

Limitations include the usual caveats associated with the survey method. Notwithstanding these limitations, the results suggest that a tone at the top that emphasizes audit effectiveness may not only improve the quality of today's audits, but by improving job satisfaction have long‐term benefits for audit firms' culture.

This paper empirically measures “tone at the top” and it shows that a tone at the top emphasis on audit effectiveness is consistent with auditors' own professionalism and may not only improve the quality of today's audits, but by improving job satisfaction have long‐term benefits for audit firms' culture.

This study examines the influence of firm management’s ethical “tone at the top” (tone) and the working relationship of an auditor with his/her supervisor (senior) on the auditor’s propensity to engage in an unethical, dysfunctional auditor behavior (DAB). Findings indicate that environmental factors influence the staff auditor’s decision of whether or not to follow a course of action suggested by the supervisor that is contrary to both the audit program and generally accepted auditing standards (GAAS). Specifically, auditors are influenced by the tone that the partner sets for the firm and by the working relationship that the staff auditor has with the supervising senior auditor. The results of this research have ramifications for the auditing profession, as they identify specific factors outside of auditing standards and beyond an auditor’s moral reasoning capabilities that can influence the acceptance of unethical, dysfunctional behavior.

This paper aims to explore whether an internal auditor’s evaluation of internal control deficiencies are influenced by the party with primary influence over the internal audit function and by the type of internal control deficiency.

A behavioral experiment is conducted with internal auditors as participants in a 2 × 2 between-subjects factorial design.

Results indicate that internal auditors are less likely to evaluate a pervasive control deficiency related to “tone at the top” as a material weakness than a process-specific control deficiency. Furthermore, internal auditors are somewhat less likely to evaluate a process-specific internal control deficiency as a material weakness when management has primary influence over the internal audit function than when the audit committee has primary influence. It is also found that the best practice of internal audit oversight (i.e., primary oversight of internal auditors by the audit committee) may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal control.

Limitations of this research include lack of economic consequences (e.g. future pay and job loss) associated with the internal control decisions made by the participants; less concise information provided to the participants than would generally be available to them; and lack of generalizability of the findings beyond the specific company setting and internal control scenario portrayed in the case materials.

Not evaluating a pervasive control deficiency related to “tone at the top” as a material weakness seems to not fully align with relevant professional guidance and can possibly result in inaccurate internal information about the quality of internal controls. Furthermore, having an internal auditor’s evaluation of a process-specific internal control deficiency influenced by the party with primary influence over the internal audit function would not appear to align with relevant professional guidance. Finally, primary oversight by the audit committee of the internal auditors may lead to potential internal under-reporting of instances where the audit committee represents a material weakness in internal controls and, thus, possible communication of inaccurate internal control information.

This study is the first to address whether the party with primary influence over the internal audit function influences an internal auditor’s evaluation of internal control deficiencies.

Unethical tone at the top (UTAT) carries a lot of risks and unsolicited results for both the people and companies. The purpose of this paper is to uncover the systematic differences in managers’ perception of UTAT based on their demographic characteristics, and subsequently to specify some useful recommendations to inform how companies can assist in increasing managers’ sensitivity to the harmful top-down practices and thus support ethicality in the workplace.

Eight demographic factors that, based on prior findings from the literature, might play a role in varying perception of UTAT were examined on data from 772 management professionals working in diverse industries. The Kruskal-Wallis test statistics was utilised to infer significant differences in perceptions of UTAT among managers.

Findings suggest that male managers tended to perceive UTAT as significantly less harmful than did their female counterparts. Similarly, top managers inclined to perceive UTAT as less detrimental than the middle and line management levels. Managers with higher tenure (10+ years of managerial experience) perceived UTAT as more detrimental in contributing to unethical leadership decisions and workplace culture. Respondents who have studied business-oriented programs perceived UTAT to be less harmful for the company than the non-business students. Interestingly, age, level of education, span of control and even the ethics training received during career were all found to be not relevant in this respect.

Based on solid empirical findings this study fills the gap in literature on the tone at the top and helps in understanding what can be done in organisational practice to improve managers’ awareness of the damaging effects of UTAT and thus to minimise threats to an ethical workplace culture.

This paper aims to investigate whether the managers’ emphasis on audit in the management’s discussion and analysis (MD&A) section of the 10-K filing, as part of the firm’s “tone at the top,” is linked to audit quality.

Adopting a computational linguistics approach, the authors measure the manager’s audit emphasis as the frequency of audit-related words in the MD&A. The authors then assess the relationship between audit emphasis and audit quality with ordinary least squares and probit regression models.

This study finds that the manager’s audit emphasis, proxied by the count of audit-related words, is positively associated with audit fees, audit delay, the appointment and retention of Big 4 and industry-specialist auditors, and the probability of switching to Big 4 auditors, while negatively linked to abnormal accruals and the possibility of financial misstatements.

The audit emphasis measure suffers from limitations. The computer program determining audit emphasis may misinterpret words in the MD&A. Researchers need to consider procedures to minimize misinterpretations.

Frequency of audit words in the MD&A reflects the firm’s aspiration for audit quality. Auditors, regulators and investors could ascertain such aspiration from past and current MD&As.

This study associates the manager’s emphasis on audit, measured with computational linguistics from the MD&A, with realized audit quality.

The purpose of this paper is to examine the ability of enterprise systems and embedded controls to prevent unethical behavior within organizations.

The authors use a case study to explore how the configuration of information technology (IT) controls within enterprise systems and their effectiveness in preventing unethical behavior is compromised by the tone at the top.

The study highlights the decisive role of cultural values and leadership in moderating the relationship between IT controls and unethical behavior and the realization that ethical environments are socially constructed not enforced.

The limitation of this research is that the authors conducted one case study in an institution of higher education to refute the theory that IT controls embedded within enterprise systems can prevent unethical, and thus, the results may not be generalizable to other industries.

An important implication of the research is that the configuration of information system controls is affected by the organizational culture and the ethical values embraced by top management. When the tone at the top does not emphasize the ethical code of conduct, the configuration of IT controls will be compromised leaving organizations vulnerable at all levels.

Although the authors have a wealth of knowledge on ethics and theories that explain why unethical decision-making continue to surface to the headlines, they have little explanation as to why enterprise systems fail to stop unethical behavior in organizations. This study explores technical, organizational and individual factors that contribute to unethical decision-making.

The accounting profession’s strong focus on internal control and fraudulent financial reporting has led to new standards relating to internal control and fraudulent financial reporting. The control environment and specifically, management integrity, is an important component. The purpose of this article is to determine if the control environment forces ‐ the tone at the top, codes of conduct, and short‐term targets ‐ are related to financial reporting decisions. The results are based on a survey mailed to 400 CPAs who prepare financial reports. The findings indicate there is some reason for concern about fraudulent financial reporting. In addition, a tone at the top in an organization that fosters ethical decisions is of overriding importance to reliable financial reporting. Codes of conduct and pressure for short‐term performance, alone, had no significant effect on financial reporting decisions. The findings emphasize the importance of learning about an organization’s tone at the top during an audit.

Voluntary non-financial reporting aims at fairly reporting a firm’s non-financial performance. In particular, integrated reporting (IR) displays in a single report the contribution of different forms of capital to the firm’s value creation. Drawing on both legitimacy and voluntary disclosure theory, the main purpose of this study is to examine the extent to which a company’s environmental, social, and governance (ESG) performance affects the content and semantic properties of intellectual capital disclosure (ICD) found in IRs.

To test theoretical hypotheses, content and tone analysis is used to assess the disclosure strategy associated with ICD, whereas a regression analysis tests the variation in semantic properties of ICD according to firms’ ESG performance. A total of 79 reports by European listed firms from 2011 to 2016 were downloaded via the Integrated Reporting Emerging Practice Examples Database and analyzed.

Results show that ESG performance contributing more to optimistic ICD tone is governance, although in mixed ways. Integrating vision and strategy positively contributes to ICD tone, whereas information on poor treatment of shareholders’ rights tends to be manipulated and associated with an optimistic tone of the ICD. Moreover, eco-efficient product innovation and healthy and safe job conditions play a positive role in enhancing optimistic ICD tone.

This chapter contributes to the current literature on voluntary disclosure by introducing new evidence on the disclosure strategy in IR. By analyzing the effect of the single dimensions of ESG performance on ICD tone, this study extends respectively ESG literature.

Prior research documents that chief executive officer (CEO) characteristics and succession planning affect audit fees. However, whether new CEOs’ media coverage influences audit fees remains unexplored. This study aims to fill this gap by examining whether auditors price media coverage of the new CEO.

The sample comprises 89 US listed firms with CEO turnover over the period 2012–2016, resulting in a total of 445 firm-year observations. Panel data models are used in the analyses.

The results show that audit fees are higher for firms that hire a new CEO covered with more negative media tone. This study further documents that CEO media tone is determined independently of audit pricing, but that the extent of audit fees is positively related to a new CEO covered with more negative media tone, consistent with a sequential media-tone-then-audit-pricing process.

The results of this study should motivate future auditing research to consider the media as an important source of external information. The findings are also relevant to stakeholders who are interested in understanding the relationship between auditors and their clients’ CEOs.

This study contributes to the audit fee literature by providing new evidence that auditors view their clients’ CEO with a negative media tone as requiring greater audit effort and leading to higher risks, due to greater public and regulators’ attention conveyed in news coverage. Moreover, the finding of this study that audit fees are higher for firms that hire a new CEO covered with more negative media tone is novel, and extends Joe’s (2003) empirical finding that negative press coverage increases auditors’ perception of risk.