Description
Much concern has been expressed in recent years regarding the state of business ethics in the People’s Republic of
China, and it has been suggested that unethical behavior is common both in the business community and in accounting
firms. Despite such concerns, very little empirical research has been done on ethics in the Chinese public accounting
profession, and no previous study has examined the ethical culture or climate in Chinese CPA firms
Ethical climate in Chinese CPA ?rms
William E. Shafer
*
Department of Accountancy, Lingnan University, 8 Castle Peak Road, Tuen Mun, NT, Hong Kong
Abstract
Much concern has been expressed in recent years regarding the state of business ethics in the People’s Republic of
China, and it has been suggested that unethical behavior is common both in the business community and in accounting
?rms. Despite such concerns, very little empirical research has been done on ethics in the Chinese public accounting
profession, and no previous study has examined the ethical culture or climate in Chinese CPA ?rms. The current paper
reports the results of a preliminary study of the ethical climate in local and international CPA ?rms operating in China,
and the in?uence of ethical climate and personal ethical orientations on decision-making. Contrary to expectations, the
perceived ethical climate in local ?rms was not more negative; however, auditors employed by local ?rms judged ques-
tionable actions as more ethical and indicated a higher likelihood of committing similar actions. Consistent with our
hypotheses, perceptions of the ethical climate in one’s organization had a signi?cant e?ect on intentions to commit eth-
ically questionable acts. In addition, high relativists (who tend to reject broad moral principles in favor of situational
analysis) were signi?cantly in?uenced by the perceived organizational ethical climate, but low relativists were not sim-
ilarly in?uenced.
Ó 2007 Elsevier Ltd. All rights reserved.
Introduction
China’s transition to a socialist market system
and sustained economic growth have given it an
increasingly prominent role in the global economy.
The story of China’s rapid economic development
is a familiar one, but this transition has brought
with it increasing concern over the state of busi-
ness ethics and morality in the PRC. Indeed, it is
often suggested that unethical and irresponsible
business practices are widespread in China (e.g.,
Hana?n, 2002; Lu & Enderle, 2006; Snell & Tseng,
2002; Wang, 2003).
The CPA profession in China has developed
along with the country’s market economy, motivat-
ing chronicles of its progression and discussions of
similarities and di?erences between the PRC pro-
fession and its Western counterparts (e.g., Cooper,
Chow, & Wei, 2002; Hao, 1999; Tang, 1999, 2000).
The public accounting profession was only re-
established in China in the early 1980s in the wake
0361-3682/$ - see front matter Ó 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2007.08.002
*
Tel.: +852 2616 8165; fax: +852 2464 9394.
E-mail address: [email protected]
www.elsevier.com/locate/aos
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 825–835
of market reforms that began in 1978 (Hao, 1999;
Tang, 2000), and thus is still in its infancy relative
to the profession in the West. Re?ecting the more
general concerns regarding the state of business
ethics in China, concerns have also been voiced
regarding ethical or moral standards in the
accounting profession. For instance, Cooper et al.
(2002, p. 387, emphasis added) argue that ‘‘During
China’s economic reform, pursuing personal inter-
ests has become acceptable and in this transitional
period, moral standards are not well established,
and the Chinese accounting profession has been
developing during this period of moral vacuum.’’
Similar concerns were expressed by Tang (1999,
2000). Apractice review by the Ministry of Finance
in 1998 seemed to con?rmsuspicions of widespread
unethical practices in Chinese public accounting
?rms. As a result of this review, 344 CPA ?rms
and 1441 branch o?ces of ?rms were closed down,
352 CPAs lost their licenses to practice, and thou-
sands of CPAs were issued warnings for ethical
breaches (Tang, 1999). Despite such evidence of
unethical practices, very few studies in the account-
ing or auditing literature have examined Chinese
auditors’ ethical decision processes, and no previ-
ous study has examined the ethical climate or cul-
ture in Chinese CPA ?rms.
The few studies that have addressed ethical
decision making in Chinese public accounting
?rms have focused primarily on auditors’ level of
cognitive moral development (e.g., Tsui & Gul,
1996), re?ecting a common concern of accounting
ethics researchers over the last several years (e.g.,
Bernardi & Arnold, 1997, 2004; Sweeney & Rob-
erts, 1997; Windsor & Ashkanasy, 1995; Ponemon,
1992a, 1992b). Although individual characteristics
such as cognitive moral development undoubtedly
a?ect ethical decision making, arguably more
emphasis should be given to the study of organiza-
tional in?uences. Indeed, most models of ethical
decision making in organizations explicitly recog-
nize the in?uence of organizational characteristics
such as the ethical climate or culture (e.g., Hunt &
Vitell, 1986; Trevin˜ o, 1986), and discussions of the
importance of ethical climate or culture often
appear in the accounting practitioner literature
(e.g., Castellano & Lightle, 2005; Gebler, 2006;
Waring, 2004).
The current study is an initial attempt to inves-
tigate the ethical climate in Chinese CPA ?rms.
Due to concerns regarding the state of business
ethics in China, we sought to compare perceptions
of the ethical climate and ethical decision processes
in local and international auditing ?rms. To con-
trol for the e?ects of individual characteristics on
ethical decision making and test their potential
interaction with perceptions of the ethical climate,
participants’ ethical orientations (idealism and rel-
ativism) were also assessed. The next section will
brie?y review relevant literature and develop the
research hypotheses. We then discuss the research
method and ?ndings. The paper concludes with a
discussion of the ?ndings and suggestions for fur-
ther research.
Literature review and hypothesis development
Ethical climate
Victor and Cullen (1988, p. 101) de?ne ethical cli-
mate as ‘‘the prevailing perceptions of typical orga-
nizational practices and procedures that have
ethical content. . .’’, and argue that the ethical cli-
mate in organizations will be an important source
of information to employees regarding what actions
are ‘‘right’’ or ethical in a work context. Underlying
this argument is the assumption that organizations
and organizational sub-groups develop institution-
alized normative systems that are su?ciently known
to organizational members tobe perceived as a work
climate (Victor &Cullen, 1988, p. 102). The concept
of ethical climate is similar to broader constructs
such as organizational climate (Schneider, 1975)
and organizational culture (Smircich, 1983), but is
more focused on ethical or moral issues.
Victor and Cullen (1987, 1988) suggest that
organizational ethical climates vary along two
principal dimensions: the ethical criteria used for
decision making (egoism, benevolence, or princi-
ple) and the locus of analysis (individual, local, cos-
mopolitan). The three ethical criteria were chosen
based on the observation that most theories of eth-
ical decision making recognize that choices may be
made based on maximizing self-interest (egoism),
maximizing mutual or joint interests (benevolence),
826 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
or complying with deontological standards (princi-
ple). These three criteria also roughly correspond
with Kohlberg’s (1981) stages of cognitive moral
development in individuals (Victor & Cullen,
1987, 1988). The locus of analysis dimension refers
to the referent sources that individuals use in mak-
ing ethical decisions or the limits of consideration
in ethical analyses. If the locus of analysis is the
individual, the prevailing norms within the organi-
zation support reliance on employees’ personal
norms or the pursuit of self-interested behavior.
If the locus of analysis is local, the primary referent
groups are within the organization, e.g., the
employee’s department or workgroup. The cosmo-
politan level of analysis relies on sources of ethical
reasoning external to the organization, such as pro-
fessional ethical codes or laws. The combination of
these two dimensions results in the nine theoretical
climate types illustrated in Fig. 1.
The ethical climate construct derives practical
signi?cance from its potential in?uence on employ-
ees’ ethical decision processes. Indeed, Victor and
Cullen (1987, p. 68) argue that the most important
research questions relating to ethical climate con-
cern the in?uence of such climates on ethical
behavior. They observe that ‘‘The ethics of
employees result, to some extent, from their own
moral characters developed prior to organizational
entry. However, the ethics of employees also result
partly from an adherence to the prevailing values
of the organization. . . Once in an organization,
employees learn ‘the right way’ of behaving
through formal and informal socialization’’ (Vic-
tor & Cullen, 1987, p. 51). Thus, the perceived eth-
ical climate both re?ects and helps de?ne the ethics
or morality of an organization.
Victor and Cullen (1987, 1988) and Cullen et al.
(1993) developed and re?ned the ethical climate
questionnaire (ECQ) to assess employee percep-
tions of climate in their work organization. This
instrument includes 36 statements, four for each
of the nine theoretical climate types. The ECQ
has been used in dozens of studies in a variety of
organizational contexts over the past two decades.
Among the conclusions reached by Martin and
Cullen (2006) based on their recent review of this
research are: (1) in most organizations studied,
not all distinct climate types emerge – the most
common pattern has been to ?nd one ‘‘instrumen-
tal’’ climate that combines the egoistic/individual
and egoistic/local climate types, one ‘‘caring’’ cli-
mate that combines the benevolent/individual
and benevolent/local types, and three distinct cli-
mates at the principle level;
1
(2) research on the
antecedents of ethical climates is relatively limited,
but existing studies have found that the external
organizational context (e.g., national culture),
organizational form (e.g., pro?t vs. non-pro?t
?rms), and managerial orientations (e.g., entrepre-
neurial vs. non-entrepreneurial orientation) a?ect
organizational ethical climate; (3) a large number
of studies have focused on the consequences of
ethical climate perceptions, including dysfunc-
tional or unethical behavior, organizational com-
mitment and job satisfaction; in general, these
studies have found that instrumental (egoistic) cli-
mates increase the likelihood of unethical behavior
and reduce commitment and satisfaction, while
caring (benevolent) and principled climates
decrease the likelihood of unethical behavior and
increase commitment and satisfaction.
LOCUS OF ANALYSIS
Individual Local Cosmopolitan
E
g
o
i
s
m
Self-Interest Company Profit Efficiency
B
e
n
e
v
o
l
e
n
c
e
Friendship Team Interest
Social
Responsibility
E
T
H
I
C
A
L
C
R
I
T
E
R
I
O
N
P
r
i
n
c
i
p
l
e
Personal
Morality
Company Rules
and Procedures
Laws and
Professional
Codes
Fig. 1. Theoretical climate types. Source: Victor and Cullen
(1988).
1
There has been variation among studies in the climate types
identi?ed. For example, in addition to these ?ve commonly
identi?ed climate types, Cullen, Victor, and Bronson (1993)
identi?ed a distinct social responsibility (benevolent/cosmopol-
itan) climate in their study of public accounting ?rms.
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 827
Consideration of the consequences of the per-
ceived ethical climate in public accounting ?rms
leads to similar conclusions. It seems apparent that
climates characterized by self-interest (egoistic/indi-
vidual) and ?rm interest (egoistic/local) are more
likely to be associated with questionable or unethi-
cal behavior. Many of the common ethical dilem-
mas faced by public accountants involve pressure
to compromise moral or ethical principles to obtain
or retain clients, actions that primarily serve the
CPA’s personal interest and/or the ?rm’s short-
term ?nancial interest. In contrast, climates that
emphasize following the ethical standards of the
profession (principle/cosmopolitan) should in gen-
eral be associated with more ethical decisions. Cli-
mates that emphasize social responsibility or
serving the public interest (benevolent/cosmopoli-
tan) should also be associated with more ethical
decisions in auditing due to the traditional empha-
sis on the public interest role of the auditing func-
tion. This discussion leads to the following
hypotheses.
2
Hypothesis 1. As the perceived emphasis on self-
interest (egoistic/individual) and ?rm interest
(egoistic/local) in an auditor’s ?rm increases, the
auditor will be more likely to judge questionable
actions as ethical and more likely to express an
intention to engage in similar actions.
Hypothesis 2. As the perceived emphasis on the
public interest (benevolent/cosmopolitan) and the
ethical standards of the profession (principle/cos-
mopolitan) in an auditor’s ?rm increases, the audi-
tor will be more likely to judge questionable
actions as unethical and less likely express an
intention to engage in similar actions.
We also sought to examine the relationship
between type of CPA ?rm (PRC vs. international)
and ethical climate. Previous studies have exam-
ined the relationship between accounting ?rm size
and issues relating to ethics or professionalism, but
the results appear to be mixed. Loeb (1971) found
that auditors working in larger ?rms were more
likely to disapprove of questionable ethical prac-
tices. However, later ?ndings appear inconsistent
with the assertion that larger accounting ?rms fos-
ter more ethical or professional climates. For
instance, Schroeder and Imdieke (1977) failed to
?nd a signi?cant relationship between accounting
?rm size and local-cosmopolitan orientation, and
Goetz, Morrow, and McElroy (1991) found a neg-
ative association between CPA ?rm size and a
composite measure of professionalism based on
Hall’s (1968) instrument.
Consideration of the current state of business
and accounting ethics in the PRC, however, sug-
gests that local accounting ?rms may have more
negative ethical climates than international ?rms.
Victor and Cullen (1988) suggest that ethical cli-
mates in organizations will re?ect institutionalized
social norms. Thus, it seems likely that the prevail-
ing social norms in the local business community
will have some negative impact on the ethical cli-
mate in local PRC ?rms, which in turn will nega-
tively impact ethical decision processes. In
contrast, international accounting ?rms operating
in China are likely to attempt to maintain rela-
tively uniform professional and ethical standards
across all their markets or areas of operation. This
reasoning leads to the following hypotheses.
Hypothesis 3. The perceived emphasis on self-
interest (egoistic/individual) and ?rm interest
(egoistic/local) in local Chinese CPA ?rms will be
greater than in international CPA ?rms operating
in China. The perceived emphasis on the public
interest (benevolent/cosmopolitan) and the ethical
standards of the profession (principle/cosmopoli-
tan) will be greater in international ?rms than in
local ?rms.
Hypothesis 4. Auditors employed by local Chinese
CPA ?rms will be more likely to judge question-
able actions as ethical and more likely to express
an intention to engage in similar actions relative
to auditors employed by international CPA ?rms
operating in China.
2
As observed by Trevin˜ o, Butter?eld, and McCabe (1998), it
is sometimes di?cult to generalize regarding the e?ects of
certain ethical climate types on decision processes. For example,
the e?ects of an independent (principle/individual) climate on
decisions will depend on the ethical principles of the decision
maker. Accordingly, we are only proposing hypotheses for
climate types that appear to have clear implications for ethical
decisions in public accounting.
828 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
Ethical orientation
Forsyth (1980) asserts that individual di?er-
ences in moral judgment may be described most
parsimoniously by reference to two basic factors:
idealism, the extent to which a person assumes that
favorable consequences can always be achieved by
taking the ‘‘right’’ or most ethical course of action;
and relativism, the extent to which a person rejects
universal moral principles in favor of individualis-
tic analysis. Forsyth (1980) developed the ethics
position questionnaire (EPQ) to assess individual
attitudes toward these two dimensions of ethical
decision making, which are often referred to as a
person’s ethical orientation.
Accounting researchers have investigated the
impact of ethical orientation on judgments and
attitudes, generally examining the propositions
that high levels of idealism (relativism) will be asso-
ciated with more (less) ethical decisions. However,
the results of these studies have been mixed. For
example, Arrington and Reckers (1985) found that
more idealistic (relativistic) subjects judged tax eva-
sion as more (less) serious, and were more (less)
likely to view tax compliance as a social norm.
Shaub, Finn, and Munter (1993) found that relativ-
ism had a signi?cant negative e?ect on auditors’
ethical sensitivity; however, idealism was also
found to be negatively associated with ethical sen-
sitivity. Douglas, Davidson, and Schwartz (2001)
found that more idealistic auditors rated question-
able actions more negatively, as anticipated. How-
ever, relativism did not have a signi?cant e?ect on
judgments.
In the current study we were primarily inter-
ested in the potential interactive e?ects of relativ-
ism and the perceived organizational ethical
climate. Due to their lack of strong commitment
to moral principles and rules, relativistic auditors
should be more strongly in?uenced by the per-
ceived ethical climate in their ?rm. Relativists are
fundamentally skeptical of moral rules, and advo-
cate individualistic or personal analysis of moral
dilemmas (Forsyth, 1980). Consequently, they
are more likely to be in?uenced by situation-spe-
ci?c factors such as perceptions of what is consid-
ered acceptable behavior in their organization.
This reasoning suggests the following hypothesis.
Hypothesis 5. Relativistic auditors will be more
likely to be in?uenced by the perceived ethical
climate in their ?rm.
Research method
Instrument
Participants completed: (1) a series of three
auditing vignettes that elicited ethical judgments
and behavioral intentions; (2) the ethical climate
questionnaire
3
(Cullen et al., 1993); (3) the Ethics
Position Questionnaire (Forsyth, 1980); (4) the
impression management scale (Paulhus, 1989);
and (5) a demographic questionnaire. The auditing
vignettes address a variety of issues encountered in
auditing practice, including ‘‘lowballing’’ or set-
ting an initial audit fee low in the expectation of
earning higher fees from the client in the future,
disclosure of an audit client’s impending bank-
ruptcy to another audit client who is a creditor
of the faltering company, and o?ering an auditing
position to the under-quali?ed son of a potential
audit client. The vignettes have been used in sev-
eral previous auditing studies, most recently by
Douglas et al. (2001). Overall ethical judgments
were provided on a seven-point scale anchored
on ‘‘ethical’’ (1) and ‘‘unethical’’ (7). To provide
more re?ned measures of ethical judgments, par-
ticipants also responded to eight items from the
Multidimensional Ethics Scale recently used by
Henderson and Kaplan (2005) to elicit tax profes-
sionals’ ethical judgments. Behavioral intentions
were elicited by asking participants to estimate
the likelihood they would act as the hypothetical
CPA did, on a seven-point scale anchored on
‘‘unlikely’’ (1) and ‘‘very likely’’ (7). The impres-
sion management scale was included to control
for the e?ects of social desirability response bias,
3
The wording of several of the items in the ECQ was changed
to make them more appropriate for the public accounting
context. Speci?cally, several of the statements that measure the
social responsibility (benevolent/cosmopolitan) climate in
the original questionnaire referred to ‘‘the customer’s and the
public interest’’ together. Due to the well-known con?ict in
auditing between the client’s interest and the public interest, this
wording was changed to simply refer to the ‘‘public interest.’’
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 829
which is likely to be present in studies of ethical
decision making (Paulhus, 1984).
The research instrument was translated from
English to Chinese (Mandarin) and re?ned based
on an independent back-translation. The question-
naire was pre-tested with a sample of approxi-
mately 30 sta? members of public accounting
?rms in the PRC, and minor changes to improve
clarity were made based on the feedback received.
The instrument was also reviewed by three part-
ners in PRC CPA ?rms for relevance and clarity.
Participants
The instrument was distributed through con-
tacts at local and international public accounting
?rms with o?ces in the PRC,
4
to employees at
the senior and manager levels. A cover letter
accompanying the instrument brie?y described
the project and assured participants of con?denti-
ality. Participants were instructed to complete the
questionnaire without assistance, and to seal the
completed instrument in an envelope provided
and return it to the researchers. A total of approx-
imately 200 instruments were distributed, and 128
usable responses were received, providing a
response rate of approximately 64%. Although this
response rate is relatively high, it should be
acknowledged that there is a possibility that the
responses were a?ected by non-response bias.
5
The sample was comprised of 28 local ?rm
seniors, 32 local ?rm managers, 32 international
?rm seniors, and 36 international ?rm managers.
Approximately 54% of participants were male.
Over 90% held a bachelors or masters degree,
and over 80% were CPAs. The mean age was
approximately 34, and the mean level of profes-
sional experience was approximately 8 years. The
average participant devoted approximately 80%
of their time to auditing, with the remaining 20%
being split between taxation, consulting, and other
(e.g., administrative work).
Findings
6
Hypothesis tests were performed using multiple
regression models. The models for ethical judg-
ments and behavioral intentions are reported in
Table 1. The independent variables in the model
for ethical judgments include ethical climate,
7
ide-
alism, relativism,
8
CPA ?rm type (local vs. interna-
tional), position (senior vs. manager), gender, and
impression management.
9,10
Three alternative
models are reported for ethical judgments, based
on overall, moral equity, and relativism judg-
ments.
11
The results for both overall and moral
4
The instruments were distributed to ?rms with o?ces in
Shenzhen, Shanghai, and Beijing, each of which is among the
largest urban areas in the PRC.
5
Like most studies of this type, we did not explicitly test for
non-response bias, because we did not have demographic data
on all recipients of the instrument.
6
A more detailed version of the data analysis and ?ndings
may be obtained from the author upon request.
7
Exploratory principle components factor analysis revealed
four ethical climate factors with eigenvalues in excess of one,
corresponding with the egoistic/local, benevolent/cosmopoli-
tan, principle/individual, and principle/cosmopolitan climates.
The reliabilities of these four factors, based on coe?cient alpha,
ranged from .71 to .79, and thus were acceptable.
8
Con?rmatory factor analysis of the EPQ items revealed that
the items all loaded signi?cantly on the appropriate factors
(idealism vs. relativism). The internal reliability of the idealism
(relativism) scale was .84 (.82) based on Cronbach’s alpha,
indicating an acceptable reliability level.
9
Both position and gender have been found to in?uence
ethical decision making and thus were included as control
variables. Univariate tests of the e?ects of other demographic
variables, including professional experience, degree type, and
professional certi?cation status, found that these variables were
consistently unrelated to the dependent measures and thus they
were excluded from further analysis.
10
Although several of the independent variables included in
the regression models reported in this section were signi?cantly
correlated, none of the variance in?ation factors in any of the
models exceeded 1.9, suggesting that the results were not
signi?cantly biased by multicollinearity.
11
An exploratory factor analysis revealed two reliable factors
for the Multidimensional Ethics Scale. The ?rst factor was
comprised of three moral equity items (‘‘just’’, ‘‘fair’’, and
‘‘morally right’’), and had an internal reliability of .93. The
second factor was comprised of one moral equity item
(‘‘acceptable to my family’’) and two relativism items (‘‘tradi-
tionally acceptable’’ and ‘‘culturally acceptable’’). The internal
reliability of this factor was .92. The ethical judgment and
behavioral intention measures were based on the means across
the three auditing vignettes.
830 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
Table 1
Regression models for ethical judgments and behavioral intentions
Std. Beta t-Statistic p-Value
Panel A: dependent variable = overall ethical judgments
Independent variables
Egoistic/local climate À.116 À1.19 .235
Benevolent/cosmopolitan climate .092 .76 .446
Principle/individual climate À.028 À.28 .779
Principle/cosmopolitan climate .178 1.57 .118
Idealism À.054 À.55 .586
Relativism À.042 À.45 .655
CPA ?rm type .218 2.32 .022
Position .089 .96 .342
Gender À.004 À.04 .969
Impression management .105 .94 .348
Model F-value 1.87
Model signi?cance .055
Model R
2
.138
Panel B: dependent variable = moral equity judgments
Independent variables
Egoistic/local climate À.152 À1.57 .117
Benevolent/cosmopolitan climate .152 1.27 .206
Principle/individual climate À.062 À.64 .524
Principle/cosmopolitan climate .129 1.16 .250
Idealism .026 .26 .791
Relativism À.095 À1.03 .303
CPA ?rm type .234 2.51 .013
Position .114 1.23 .221
Gender À.012 À.13 .899
Impression management .019 .17 .862
Model F-value 2.07
Model signi?cance .032
Model R
2
.150
Panel C: dependent variable = relativism judgments
Independent variables
Egoistic/local climate À.352 À3.79 .000
Benevolent/cosmopolitan climate .037 .32 .750
Principle/individual climate .161 1.71 .090
Principle/cosmopolitan climate .109 1.02 .312
Idealism .105 1.06 .301
Relativism À.137 À1.54 .126
CPA ?rm type .032 .36 .722
Position .022 .25 .803
Gender À.074 À.83 .406
Impression management .045 .42 .676
Model F-value 3.15
Model signi?cance .001
Model R
2
.213
Panel D: dependent variable = behavioral intentions
Independent variables
Egoistic/local climate .284 3.72 .000
(continued on next page)
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 831
equity judgments indicate that only CPA ?rm type
signi?cantly a?ected ethical judgments. Auditors
employed by international ?rms judged the actions
as more unethical relative to auditors employed by
local ?rms, which is consistent with Hypothesis 4.
The results for overall and moral equity judgments
do not support Hypotheses 1 and 2, i.e., ethical cli-
mate did not signi?cantly a?ect ethical judgments.
The model for relativism judgments indicates that
the egoistic/local climate had a highly signi?cant
e?ect on judgments, suggesting that perceptions
of a climate that emphasizes ?rm interest increases
the perceived acceptability of questionable actions.
This result provides limited support for Hypothe-
sis 1. Neither idealism nor relativism was signi?-
cant in any of the models for ethical judgments.
The model for behavioral intentions includes
the same independent variables plus participants’
ethical judgments.
12
The results indicate that three
of the four ethical climate variables (egoistic/local,
benevolent/cosmopolitan, and principle/cosmo-
politan) had a signi?cant impact on behavioral
intentions. All coe?cients for these variables were
in the predicted directions. These results are con-
sistent with Hypotheses 1 and 2. CPA ?rm type
also had a signi?cant e?ect. Again consistent with
Hypothesis 4, auditors employed by international
CPA ?rms were less likely to express an intention
to engage in ethically questionable actions. The
position variable was also signi?cant, with manag-
ers being less likely to express an intention to
engage in questionable actions. The ethical judg-
ment variable was signi?cant and in the predicted
direction. As in the case of the models for ethical
judgments, neither idealism nor relativism was sig-
ni?cant. The overall model was highly signi?cant
and explained approximately 48% of the variation
in behavioral intentions.
Regression models were also used to assess the
e?ects of CPA ?rm type on ethical climate percep-
tions. These models revealed that only the benevo-
lent/cosmopolitan climate was signi?cantly
associated with CPA ?rm type, with local ?rm
auditors perceiving more emphasis on benevo-
lent/cosmopolitan concerns in their ?rms. Thus,
Hypothesis 3 was not supported.
To test Hypothesis 5, the sample was parti-
tioned into high and low relativists based on a
median split, and the regression models for ethical
judgments and behavioral intentions were run sep-
arately for each group. The results indicate that
the previously observed e?ect of the egoistic/local
climate on relativism judgments was signi?cant
only for high relativists. Similarly, the previously
observed e?ects of the egoistic/local, benevolent/
cosmopolitan, and principle/cosmopolitan cli-
mates on behavioral intentions were signi?cant
12
This variable was included due to a strong correlation
between judgments and intentions and a general lack of strong
correlations between the ethical climate variables and overall
ethical judgments, i.e., correlation analysis suggested that
ethical climate and ethical judgments exerted independent
in?uences on behavioral intentions. All substantive conclusions
regarding the hypothesis tests are the same regardless of
whether the ethical judgment variable is included in the model.
Table 1 (continued)
Std. Beta t-Statistic p-Value
Benevolent/cosmopolitan climate À.225 À2.39 .019
Principle/individual climate À.013 À.17 .867
Principle/cosmopolitan climate À.177 À2.00 .048
Idealism .047 .61 .543
Relativism .078 1.07 .287
CPA ?rm type À.165 À2.15 .033
Position À.150 À2.06 .042
Gender À.036 À.50 .619
Impression management À.132 À1.50 .137
Ethical judgments (overall) À.326 À4.44 .000
Model F-value 9.67
Model signi?cance .000
Model R
2
.478
832 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
for high relativists, but not for low relativists.
These ?ndings support the hypothesized interac-
tion between ethical climate and relativism.
Discussion and conclusions
This study provides a number of interesting
?ndings relating to Chinese auditors’ ethical deci-
sion processes and raises a number of questions
for future research. We found signi?cant di?er-
ences between local and international auditing
?rms in ethical judgments (overall and moral
equity judgments) and behavioral intentions, with
local ?rm auditors being more likely to judge
aggressive actions as ethical and express intentions
to commit similar actions. However, contrary to
our hypothesis, the ethical climate in local PRC
?rms was not perceived as more negative. In fact,
local ?rm auditors perceived a stronger benevo-
lent/cosmopolitan climate in their ?rms. Given
that the benevolent/cosmopolitan climate was
associated with a lower likelihood of committing
aggressive actions across both ?rm types, these
results suggest that other factors associated with
local ?rms more than o?set the positive e?ect of
the stronger benevolent/cosmopolitan climate.
Our regression results indicate that ethical cli-
mate did not signi?cantly a?ect overall or moral
equity judgments. However, perceptions of an ego-
istic/local climate (one that places primary empha-
sis on the interests of the ?rm) had a highly
signi?cant e?ect on relativism judgments (judg-
ments of what is traditionally or culturally accept-
able). Not surprisingly, auditors who perceived a
stronger egoistic/local climate in their ?rm were
more likely to feel that questionable actions were
acceptable. We also found that three of the four
ethical climate factors had a signi?cant e?ect on
behavioral intentions. Auditors who perceived a
stronger egoistic/local climate were more likely to
express an intention to engage in ethically ques-
tionable actions, while perceptions of stronger
benevolent/cosmopolitan and principle/cosmopol-
itan climates reduced the likelihood of such
actions.
Our ?ndings also indicate that auditors’ per-
sonal ethical orientations (idealism and relativism)
did not have signi?cant main e?ects on ethical
judgments or intentions. As hypothesized, how-
ever, ethical climate and relativism appear to have
signi?cant interactive e?ects on certain types of
ethical judgments and on behavioral intentions.
Speci?cally, the signi?cant e?ect of the egoistic/
local climate on relativism judgments was present
only for high relativists. Similarly, the signi?cant
e?ects of the three ethical climate factors (egois-
tic/local, benevolent/cosmopolitan, principle/cos-
mopolitan) on behavioral intentions were present
only for high relativists. These ?ndings suggest
that high relativists are more susceptible to in?u-
ence from the perceived ethical climate in their
organization.
This study was a preliminary attempt to investi-
gate the ethical climate in Chinese CPA ?rms, and
the in?uence of the perceived ethical climate on
auditors’ decision processes. Like all studies of this
type, practical limitations forced us to concentrate
on a limited number of factors. Due to the docu-
mented signi?cance of ethical climate on auditors’
ethical decisions, future studies should expand on
the current research. Studies could develop and
test models of the antecedents and consequences
of the perceived ethical climate in CPA ?rms.
For instance, future studies could examine the
e?ects of individual di?erences such as cognitive
moral development, as well as the e?ects of
broader considerations such as national culture
on the perceived ethical climate in CPA ?rms.
Future studies could also examine other behav-
ioral consequences of climate perceptions. As pre-
viously mentioned, studies have found that
perceptions of a negative ethical climate in one’s
organization appear to reduce organizational com-
mitment and job satisfaction (Martin & Cullen,
2006). This work could be extended to the context
of public accounting ?rms. The interactive e?ects
of other individual di?erence variables and ethical
climate could also be examined. For instance,
auditors with higher (lower) levels of cognitive
moral development may be less (more) susceptible
to the in?uence of the perceived ethical climate in
their organization. Investigations such as these
could provide a more comprehensive understand-
ing of the role and in?uence of the organizational
ethical climate in CPA ?rms.
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 833
The issue of ethical climate in CPA ?rms also
has practical implications. Our ?ndings suggest
that the perceived climate has a strong in?uence
on professional auditors’ intentions to commit
questionable or aggressive actions. To minimize
the occurrence of such behaviors, public account-
ing ?rms could attempt to enhance the ethical cli-
mate or culture in the ?rm. Such e?orts could start
with internal research programs designed to assess
the climate in the ?rm and identify areas for poten-
tial improvement. The climate or culture in a ?rm
should be in?uenced by the ‘‘tone at the top’’, so
communicating and emphasizing the importance
of adhering to professional ideals is likely to
enhance the perceived organizational ethical cli-
mate. Because of the interest of international
CPA ?rms in maintaining uniform standards of
quality worldwide, the ethical climate in practice
o?ces in various countries could also be assessed
and compared for consistency.
Acknowledgement
The author acknowledges the ?nancial support
of the Research and Postgraduate Studies Com-
mittee of Lingnan University, Hong Kong Special
Administrative Region, China.
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doc_892379273.pdf
Much concern has been expressed in recent years regarding the state of business ethics in the People’s Republic of
China, and it has been suggested that unethical behavior is common both in the business community and in accounting
firms. Despite such concerns, very little empirical research has been done on ethics in the Chinese public accounting
profession, and no previous study has examined the ethical culture or climate in Chinese CPA firms
Ethical climate in Chinese CPA ?rms
William E. Shafer
*
Department of Accountancy, Lingnan University, 8 Castle Peak Road, Tuen Mun, NT, Hong Kong
Abstract
Much concern has been expressed in recent years regarding the state of business ethics in the People’s Republic of
China, and it has been suggested that unethical behavior is common both in the business community and in accounting
?rms. Despite such concerns, very little empirical research has been done on ethics in the Chinese public accounting
profession, and no previous study has examined the ethical culture or climate in Chinese CPA ?rms. The current paper
reports the results of a preliminary study of the ethical climate in local and international CPA ?rms operating in China,
and the in?uence of ethical climate and personal ethical orientations on decision-making. Contrary to expectations, the
perceived ethical climate in local ?rms was not more negative; however, auditors employed by local ?rms judged ques-
tionable actions as more ethical and indicated a higher likelihood of committing similar actions. Consistent with our
hypotheses, perceptions of the ethical climate in one’s organization had a signi?cant e?ect on intentions to commit eth-
ically questionable acts. In addition, high relativists (who tend to reject broad moral principles in favor of situational
analysis) were signi?cantly in?uenced by the perceived organizational ethical climate, but low relativists were not sim-
ilarly in?uenced.
Ó 2007 Elsevier Ltd. All rights reserved.
Introduction
China’s transition to a socialist market system
and sustained economic growth have given it an
increasingly prominent role in the global economy.
The story of China’s rapid economic development
is a familiar one, but this transition has brought
with it increasing concern over the state of busi-
ness ethics and morality in the PRC. Indeed, it is
often suggested that unethical and irresponsible
business practices are widespread in China (e.g.,
Hana?n, 2002; Lu & Enderle, 2006; Snell & Tseng,
2002; Wang, 2003).
The CPA profession in China has developed
along with the country’s market economy, motivat-
ing chronicles of its progression and discussions of
similarities and di?erences between the PRC pro-
fession and its Western counterparts (e.g., Cooper,
Chow, & Wei, 2002; Hao, 1999; Tang, 1999, 2000).
The public accounting profession was only re-
established in China in the early 1980s in the wake
0361-3682/$ - see front matter Ó 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2007.08.002
*
Tel.: +852 2616 8165; fax: +852 2464 9394.
E-mail address: [email protected]
www.elsevier.com/locate/aos
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 825–835
of market reforms that began in 1978 (Hao, 1999;
Tang, 2000), and thus is still in its infancy relative
to the profession in the West. Re?ecting the more
general concerns regarding the state of business
ethics in China, concerns have also been voiced
regarding ethical or moral standards in the
accounting profession. For instance, Cooper et al.
(2002, p. 387, emphasis added) argue that ‘‘During
China’s economic reform, pursuing personal inter-
ests has become acceptable and in this transitional
period, moral standards are not well established,
and the Chinese accounting profession has been
developing during this period of moral vacuum.’’
Similar concerns were expressed by Tang (1999,
2000). Apractice review by the Ministry of Finance
in 1998 seemed to con?rmsuspicions of widespread
unethical practices in Chinese public accounting
?rms. As a result of this review, 344 CPA ?rms
and 1441 branch o?ces of ?rms were closed down,
352 CPAs lost their licenses to practice, and thou-
sands of CPAs were issued warnings for ethical
breaches (Tang, 1999). Despite such evidence of
unethical practices, very few studies in the account-
ing or auditing literature have examined Chinese
auditors’ ethical decision processes, and no previ-
ous study has examined the ethical climate or cul-
ture in Chinese CPA ?rms.
The few studies that have addressed ethical
decision making in Chinese public accounting
?rms have focused primarily on auditors’ level of
cognitive moral development (e.g., Tsui & Gul,
1996), re?ecting a common concern of accounting
ethics researchers over the last several years (e.g.,
Bernardi & Arnold, 1997, 2004; Sweeney & Rob-
erts, 1997; Windsor & Ashkanasy, 1995; Ponemon,
1992a, 1992b). Although individual characteristics
such as cognitive moral development undoubtedly
a?ect ethical decision making, arguably more
emphasis should be given to the study of organiza-
tional in?uences. Indeed, most models of ethical
decision making in organizations explicitly recog-
nize the in?uence of organizational characteristics
such as the ethical climate or culture (e.g., Hunt &
Vitell, 1986; Trevin˜ o, 1986), and discussions of the
importance of ethical climate or culture often
appear in the accounting practitioner literature
(e.g., Castellano & Lightle, 2005; Gebler, 2006;
Waring, 2004).
The current study is an initial attempt to inves-
tigate the ethical climate in Chinese CPA ?rms.
Due to concerns regarding the state of business
ethics in China, we sought to compare perceptions
of the ethical climate and ethical decision processes
in local and international auditing ?rms. To con-
trol for the e?ects of individual characteristics on
ethical decision making and test their potential
interaction with perceptions of the ethical climate,
participants’ ethical orientations (idealism and rel-
ativism) were also assessed. The next section will
brie?y review relevant literature and develop the
research hypotheses. We then discuss the research
method and ?ndings. The paper concludes with a
discussion of the ?ndings and suggestions for fur-
ther research.
Literature review and hypothesis development
Ethical climate
Victor and Cullen (1988, p. 101) de?ne ethical cli-
mate as ‘‘the prevailing perceptions of typical orga-
nizational practices and procedures that have
ethical content. . .’’, and argue that the ethical cli-
mate in organizations will be an important source
of information to employees regarding what actions
are ‘‘right’’ or ethical in a work context. Underlying
this argument is the assumption that organizations
and organizational sub-groups develop institution-
alized normative systems that are su?ciently known
to organizational members tobe perceived as a work
climate (Victor &Cullen, 1988, p. 102). The concept
of ethical climate is similar to broader constructs
such as organizational climate (Schneider, 1975)
and organizational culture (Smircich, 1983), but is
more focused on ethical or moral issues.
Victor and Cullen (1987, 1988) suggest that
organizational ethical climates vary along two
principal dimensions: the ethical criteria used for
decision making (egoism, benevolence, or princi-
ple) and the locus of analysis (individual, local, cos-
mopolitan). The three ethical criteria were chosen
based on the observation that most theories of eth-
ical decision making recognize that choices may be
made based on maximizing self-interest (egoism),
maximizing mutual or joint interests (benevolence),
826 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
or complying with deontological standards (princi-
ple). These three criteria also roughly correspond
with Kohlberg’s (1981) stages of cognitive moral
development in individuals (Victor & Cullen,
1987, 1988). The locus of analysis dimension refers
to the referent sources that individuals use in mak-
ing ethical decisions or the limits of consideration
in ethical analyses. If the locus of analysis is the
individual, the prevailing norms within the organi-
zation support reliance on employees’ personal
norms or the pursuit of self-interested behavior.
If the locus of analysis is local, the primary referent
groups are within the organization, e.g., the
employee’s department or workgroup. The cosmo-
politan level of analysis relies on sources of ethical
reasoning external to the organization, such as pro-
fessional ethical codes or laws. The combination of
these two dimensions results in the nine theoretical
climate types illustrated in Fig. 1.
The ethical climate construct derives practical
signi?cance from its potential in?uence on employ-
ees’ ethical decision processes. Indeed, Victor and
Cullen (1987, p. 68) argue that the most important
research questions relating to ethical climate con-
cern the in?uence of such climates on ethical
behavior. They observe that ‘‘The ethics of
employees result, to some extent, from their own
moral characters developed prior to organizational
entry. However, the ethics of employees also result
partly from an adherence to the prevailing values
of the organization. . . Once in an organization,
employees learn ‘the right way’ of behaving
through formal and informal socialization’’ (Vic-
tor & Cullen, 1987, p. 51). Thus, the perceived eth-
ical climate both re?ects and helps de?ne the ethics
or morality of an organization.
Victor and Cullen (1987, 1988) and Cullen et al.
(1993) developed and re?ned the ethical climate
questionnaire (ECQ) to assess employee percep-
tions of climate in their work organization. This
instrument includes 36 statements, four for each
of the nine theoretical climate types. The ECQ
has been used in dozens of studies in a variety of
organizational contexts over the past two decades.
Among the conclusions reached by Martin and
Cullen (2006) based on their recent review of this
research are: (1) in most organizations studied,
not all distinct climate types emerge – the most
common pattern has been to ?nd one ‘‘instrumen-
tal’’ climate that combines the egoistic/individual
and egoistic/local climate types, one ‘‘caring’’ cli-
mate that combines the benevolent/individual
and benevolent/local types, and three distinct cli-
mates at the principle level;
1
(2) research on the
antecedents of ethical climates is relatively limited,
but existing studies have found that the external
organizational context (e.g., national culture),
organizational form (e.g., pro?t vs. non-pro?t
?rms), and managerial orientations (e.g., entrepre-
neurial vs. non-entrepreneurial orientation) a?ect
organizational ethical climate; (3) a large number
of studies have focused on the consequences of
ethical climate perceptions, including dysfunc-
tional or unethical behavior, organizational com-
mitment and job satisfaction; in general, these
studies have found that instrumental (egoistic) cli-
mates increase the likelihood of unethical behavior
and reduce commitment and satisfaction, while
caring (benevolent) and principled climates
decrease the likelihood of unethical behavior and
increase commitment and satisfaction.
LOCUS OF ANALYSIS
Individual Local Cosmopolitan
E
g
o
i
s
m
Self-Interest Company Profit Efficiency
B
e
n
e
v
o
l
e
n
c
e
Friendship Team Interest
Social
Responsibility
E
T
H
I
C
A
L
C
R
I
T
E
R
I
O
N
P
r
i
n
c
i
p
l
e
Personal
Morality
Company Rules
and Procedures
Laws and
Professional
Codes
Fig. 1. Theoretical climate types. Source: Victor and Cullen
(1988).
1
There has been variation among studies in the climate types
identi?ed. For example, in addition to these ?ve commonly
identi?ed climate types, Cullen, Victor, and Bronson (1993)
identi?ed a distinct social responsibility (benevolent/cosmopol-
itan) climate in their study of public accounting ?rms.
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 827
Consideration of the consequences of the per-
ceived ethical climate in public accounting ?rms
leads to similar conclusions. It seems apparent that
climates characterized by self-interest (egoistic/indi-
vidual) and ?rm interest (egoistic/local) are more
likely to be associated with questionable or unethi-
cal behavior. Many of the common ethical dilem-
mas faced by public accountants involve pressure
to compromise moral or ethical principles to obtain
or retain clients, actions that primarily serve the
CPA’s personal interest and/or the ?rm’s short-
term ?nancial interest. In contrast, climates that
emphasize following the ethical standards of the
profession (principle/cosmopolitan) should in gen-
eral be associated with more ethical decisions. Cli-
mates that emphasize social responsibility or
serving the public interest (benevolent/cosmopoli-
tan) should also be associated with more ethical
decisions in auditing due to the traditional empha-
sis on the public interest role of the auditing func-
tion. This discussion leads to the following
hypotheses.
2
Hypothesis 1. As the perceived emphasis on self-
interest (egoistic/individual) and ?rm interest
(egoistic/local) in an auditor’s ?rm increases, the
auditor will be more likely to judge questionable
actions as ethical and more likely to express an
intention to engage in similar actions.
Hypothesis 2. As the perceived emphasis on the
public interest (benevolent/cosmopolitan) and the
ethical standards of the profession (principle/cos-
mopolitan) in an auditor’s ?rm increases, the audi-
tor will be more likely to judge questionable
actions as unethical and less likely express an
intention to engage in similar actions.
We also sought to examine the relationship
between type of CPA ?rm (PRC vs. international)
and ethical climate. Previous studies have exam-
ined the relationship between accounting ?rm size
and issues relating to ethics or professionalism, but
the results appear to be mixed. Loeb (1971) found
that auditors working in larger ?rms were more
likely to disapprove of questionable ethical prac-
tices. However, later ?ndings appear inconsistent
with the assertion that larger accounting ?rms fos-
ter more ethical or professional climates. For
instance, Schroeder and Imdieke (1977) failed to
?nd a signi?cant relationship between accounting
?rm size and local-cosmopolitan orientation, and
Goetz, Morrow, and McElroy (1991) found a neg-
ative association between CPA ?rm size and a
composite measure of professionalism based on
Hall’s (1968) instrument.
Consideration of the current state of business
and accounting ethics in the PRC, however, sug-
gests that local accounting ?rms may have more
negative ethical climates than international ?rms.
Victor and Cullen (1988) suggest that ethical cli-
mates in organizations will re?ect institutionalized
social norms. Thus, it seems likely that the prevail-
ing social norms in the local business community
will have some negative impact on the ethical cli-
mate in local PRC ?rms, which in turn will nega-
tively impact ethical decision processes. In
contrast, international accounting ?rms operating
in China are likely to attempt to maintain rela-
tively uniform professional and ethical standards
across all their markets or areas of operation. This
reasoning leads to the following hypotheses.
Hypothesis 3. The perceived emphasis on self-
interest (egoistic/individual) and ?rm interest
(egoistic/local) in local Chinese CPA ?rms will be
greater than in international CPA ?rms operating
in China. The perceived emphasis on the public
interest (benevolent/cosmopolitan) and the ethical
standards of the profession (principle/cosmopoli-
tan) will be greater in international ?rms than in
local ?rms.
Hypothesis 4. Auditors employed by local Chinese
CPA ?rms will be more likely to judge question-
able actions as ethical and more likely to express
an intention to engage in similar actions relative
to auditors employed by international CPA ?rms
operating in China.
2
As observed by Trevin˜ o, Butter?eld, and McCabe (1998), it
is sometimes di?cult to generalize regarding the e?ects of
certain ethical climate types on decision processes. For example,
the e?ects of an independent (principle/individual) climate on
decisions will depend on the ethical principles of the decision
maker. Accordingly, we are only proposing hypotheses for
climate types that appear to have clear implications for ethical
decisions in public accounting.
828 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
Ethical orientation
Forsyth (1980) asserts that individual di?er-
ences in moral judgment may be described most
parsimoniously by reference to two basic factors:
idealism, the extent to which a person assumes that
favorable consequences can always be achieved by
taking the ‘‘right’’ or most ethical course of action;
and relativism, the extent to which a person rejects
universal moral principles in favor of individualis-
tic analysis. Forsyth (1980) developed the ethics
position questionnaire (EPQ) to assess individual
attitudes toward these two dimensions of ethical
decision making, which are often referred to as a
person’s ethical orientation.
Accounting researchers have investigated the
impact of ethical orientation on judgments and
attitudes, generally examining the propositions
that high levels of idealism (relativism) will be asso-
ciated with more (less) ethical decisions. However,
the results of these studies have been mixed. For
example, Arrington and Reckers (1985) found that
more idealistic (relativistic) subjects judged tax eva-
sion as more (less) serious, and were more (less)
likely to view tax compliance as a social norm.
Shaub, Finn, and Munter (1993) found that relativ-
ism had a signi?cant negative e?ect on auditors’
ethical sensitivity; however, idealism was also
found to be negatively associated with ethical sen-
sitivity. Douglas, Davidson, and Schwartz (2001)
found that more idealistic auditors rated question-
able actions more negatively, as anticipated. How-
ever, relativism did not have a signi?cant e?ect on
judgments.
In the current study we were primarily inter-
ested in the potential interactive e?ects of relativ-
ism and the perceived organizational ethical
climate. Due to their lack of strong commitment
to moral principles and rules, relativistic auditors
should be more strongly in?uenced by the per-
ceived ethical climate in their ?rm. Relativists are
fundamentally skeptical of moral rules, and advo-
cate individualistic or personal analysis of moral
dilemmas (Forsyth, 1980). Consequently, they
are more likely to be in?uenced by situation-spe-
ci?c factors such as perceptions of what is consid-
ered acceptable behavior in their organization.
This reasoning suggests the following hypothesis.
Hypothesis 5. Relativistic auditors will be more
likely to be in?uenced by the perceived ethical
climate in their ?rm.
Research method
Instrument
Participants completed: (1) a series of three
auditing vignettes that elicited ethical judgments
and behavioral intentions; (2) the ethical climate
questionnaire
3
(Cullen et al., 1993); (3) the Ethics
Position Questionnaire (Forsyth, 1980); (4) the
impression management scale (Paulhus, 1989);
and (5) a demographic questionnaire. The auditing
vignettes address a variety of issues encountered in
auditing practice, including ‘‘lowballing’’ or set-
ting an initial audit fee low in the expectation of
earning higher fees from the client in the future,
disclosure of an audit client’s impending bank-
ruptcy to another audit client who is a creditor
of the faltering company, and o?ering an auditing
position to the under-quali?ed son of a potential
audit client. The vignettes have been used in sev-
eral previous auditing studies, most recently by
Douglas et al. (2001). Overall ethical judgments
were provided on a seven-point scale anchored
on ‘‘ethical’’ (1) and ‘‘unethical’’ (7). To provide
more re?ned measures of ethical judgments, par-
ticipants also responded to eight items from the
Multidimensional Ethics Scale recently used by
Henderson and Kaplan (2005) to elicit tax profes-
sionals’ ethical judgments. Behavioral intentions
were elicited by asking participants to estimate
the likelihood they would act as the hypothetical
CPA did, on a seven-point scale anchored on
‘‘unlikely’’ (1) and ‘‘very likely’’ (7). The impres-
sion management scale was included to control
for the e?ects of social desirability response bias,
3
The wording of several of the items in the ECQ was changed
to make them more appropriate for the public accounting
context. Speci?cally, several of the statements that measure the
social responsibility (benevolent/cosmopolitan) climate in
the original questionnaire referred to ‘‘the customer’s and the
public interest’’ together. Due to the well-known con?ict in
auditing between the client’s interest and the public interest, this
wording was changed to simply refer to the ‘‘public interest.’’
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 829
which is likely to be present in studies of ethical
decision making (Paulhus, 1984).
The research instrument was translated from
English to Chinese (Mandarin) and re?ned based
on an independent back-translation. The question-
naire was pre-tested with a sample of approxi-
mately 30 sta? members of public accounting
?rms in the PRC, and minor changes to improve
clarity were made based on the feedback received.
The instrument was also reviewed by three part-
ners in PRC CPA ?rms for relevance and clarity.
Participants
The instrument was distributed through con-
tacts at local and international public accounting
?rms with o?ces in the PRC,
4
to employees at
the senior and manager levels. A cover letter
accompanying the instrument brie?y described
the project and assured participants of con?denti-
ality. Participants were instructed to complete the
questionnaire without assistance, and to seal the
completed instrument in an envelope provided
and return it to the researchers. A total of approx-
imately 200 instruments were distributed, and 128
usable responses were received, providing a
response rate of approximately 64%. Although this
response rate is relatively high, it should be
acknowledged that there is a possibility that the
responses were a?ected by non-response bias.
5
The sample was comprised of 28 local ?rm
seniors, 32 local ?rm managers, 32 international
?rm seniors, and 36 international ?rm managers.
Approximately 54% of participants were male.
Over 90% held a bachelors or masters degree,
and over 80% were CPAs. The mean age was
approximately 34, and the mean level of profes-
sional experience was approximately 8 years. The
average participant devoted approximately 80%
of their time to auditing, with the remaining 20%
being split between taxation, consulting, and other
(e.g., administrative work).
Findings
6
Hypothesis tests were performed using multiple
regression models. The models for ethical judg-
ments and behavioral intentions are reported in
Table 1. The independent variables in the model
for ethical judgments include ethical climate,
7
ide-
alism, relativism,
8
CPA ?rm type (local vs. interna-
tional), position (senior vs. manager), gender, and
impression management.
9,10
Three alternative
models are reported for ethical judgments, based
on overall, moral equity, and relativism judg-
ments.
11
The results for both overall and moral
4
The instruments were distributed to ?rms with o?ces in
Shenzhen, Shanghai, and Beijing, each of which is among the
largest urban areas in the PRC.
5
Like most studies of this type, we did not explicitly test for
non-response bias, because we did not have demographic data
on all recipients of the instrument.
6
A more detailed version of the data analysis and ?ndings
may be obtained from the author upon request.
7
Exploratory principle components factor analysis revealed
four ethical climate factors with eigenvalues in excess of one,
corresponding with the egoistic/local, benevolent/cosmopoli-
tan, principle/individual, and principle/cosmopolitan climates.
The reliabilities of these four factors, based on coe?cient alpha,
ranged from .71 to .79, and thus were acceptable.
8
Con?rmatory factor analysis of the EPQ items revealed that
the items all loaded signi?cantly on the appropriate factors
(idealism vs. relativism). The internal reliability of the idealism
(relativism) scale was .84 (.82) based on Cronbach’s alpha,
indicating an acceptable reliability level.
9
Both position and gender have been found to in?uence
ethical decision making and thus were included as control
variables. Univariate tests of the e?ects of other demographic
variables, including professional experience, degree type, and
professional certi?cation status, found that these variables were
consistently unrelated to the dependent measures and thus they
were excluded from further analysis.
10
Although several of the independent variables included in
the regression models reported in this section were signi?cantly
correlated, none of the variance in?ation factors in any of the
models exceeded 1.9, suggesting that the results were not
signi?cantly biased by multicollinearity.
11
An exploratory factor analysis revealed two reliable factors
for the Multidimensional Ethics Scale. The ?rst factor was
comprised of three moral equity items (‘‘just’’, ‘‘fair’’, and
‘‘morally right’’), and had an internal reliability of .93. The
second factor was comprised of one moral equity item
(‘‘acceptable to my family’’) and two relativism items (‘‘tradi-
tionally acceptable’’ and ‘‘culturally acceptable’’). The internal
reliability of this factor was .92. The ethical judgment and
behavioral intention measures were based on the means across
the three auditing vignettes.
830 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
Table 1
Regression models for ethical judgments and behavioral intentions
Std. Beta t-Statistic p-Value
Panel A: dependent variable = overall ethical judgments
Independent variables
Egoistic/local climate À.116 À1.19 .235
Benevolent/cosmopolitan climate .092 .76 .446
Principle/individual climate À.028 À.28 .779
Principle/cosmopolitan climate .178 1.57 .118
Idealism À.054 À.55 .586
Relativism À.042 À.45 .655
CPA ?rm type .218 2.32 .022
Position .089 .96 .342
Gender À.004 À.04 .969
Impression management .105 .94 .348
Model F-value 1.87
Model signi?cance .055
Model R
2
.138
Panel B: dependent variable = moral equity judgments
Independent variables
Egoistic/local climate À.152 À1.57 .117
Benevolent/cosmopolitan climate .152 1.27 .206
Principle/individual climate À.062 À.64 .524
Principle/cosmopolitan climate .129 1.16 .250
Idealism .026 .26 .791
Relativism À.095 À1.03 .303
CPA ?rm type .234 2.51 .013
Position .114 1.23 .221
Gender À.012 À.13 .899
Impression management .019 .17 .862
Model F-value 2.07
Model signi?cance .032
Model R
2
.150
Panel C: dependent variable = relativism judgments
Independent variables
Egoistic/local climate À.352 À3.79 .000
Benevolent/cosmopolitan climate .037 .32 .750
Principle/individual climate .161 1.71 .090
Principle/cosmopolitan climate .109 1.02 .312
Idealism .105 1.06 .301
Relativism À.137 À1.54 .126
CPA ?rm type .032 .36 .722
Position .022 .25 .803
Gender À.074 À.83 .406
Impression management .045 .42 .676
Model F-value 3.15
Model signi?cance .001
Model R
2
.213
Panel D: dependent variable = behavioral intentions
Independent variables
Egoistic/local climate .284 3.72 .000
(continued on next page)
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 831
equity judgments indicate that only CPA ?rm type
signi?cantly a?ected ethical judgments. Auditors
employed by international ?rms judged the actions
as more unethical relative to auditors employed by
local ?rms, which is consistent with Hypothesis 4.
The results for overall and moral equity judgments
do not support Hypotheses 1 and 2, i.e., ethical cli-
mate did not signi?cantly a?ect ethical judgments.
The model for relativism judgments indicates that
the egoistic/local climate had a highly signi?cant
e?ect on judgments, suggesting that perceptions
of a climate that emphasizes ?rm interest increases
the perceived acceptability of questionable actions.
This result provides limited support for Hypothe-
sis 1. Neither idealism nor relativism was signi?-
cant in any of the models for ethical judgments.
The model for behavioral intentions includes
the same independent variables plus participants’
ethical judgments.
12
The results indicate that three
of the four ethical climate variables (egoistic/local,
benevolent/cosmopolitan, and principle/cosmo-
politan) had a signi?cant impact on behavioral
intentions. All coe?cients for these variables were
in the predicted directions. These results are con-
sistent with Hypotheses 1 and 2. CPA ?rm type
also had a signi?cant e?ect. Again consistent with
Hypothesis 4, auditors employed by international
CPA ?rms were less likely to express an intention
to engage in ethically questionable actions. The
position variable was also signi?cant, with manag-
ers being less likely to express an intention to
engage in questionable actions. The ethical judg-
ment variable was signi?cant and in the predicted
direction. As in the case of the models for ethical
judgments, neither idealism nor relativism was sig-
ni?cant. The overall model was highly signi?cant
and explained approximately 48% of the variation
in behavioral intentions.
Regression models were also used to assess the
e?ects of CPA ?rm type on ethical climate percep-
tions. These models revealed that only the benevo-
lent/cosmopolitan climate was signi?cantly
associated with CPA ?rm type, with local ?rm
auditors perceiving more emphasis on benevo-
lent/cosmopolitan concerns in their ?rms. Thus,
Hypothesis 3 was not supported.
To test Hypothesis 5, the sample was parti-
tioned into high and low relativists based on a
median split, and the regression models for ethical
judgments and behavioral intentions were run sep-
arately for each group. The results indicate that
the previously observed e?ect of the egoistic/local
climate on relativism judgments was signi?cant
only for high relativists. Similarly, the previously
observed e?ects of the egoistic/local, benevolent/
cosmopolitan, and principle/cosmopolitan cli-
mates on behavioral intentions were signi?cant
12
This variable was included due to a strong correlation
between judgments and intentions and a general lack of strong
correlations between the ethical climate variables and overall
ethical judgments, i.e., correlation analysis suggested that
ethical climate and ethical judgments exerted independent
in?uences on behavioral intentions. All substantive conclusions
regarding the hypothesis tests are the same regardless of
whether the ethical judgment variable is included in the model.
Table 1 (continued)
Std. Beta t-Statistic p-Value
Benevolent/cosmopolitan climate À.225 À2.39 .019
Principle/individual climate À.013 À.17 .867
Principle/cosmopolitan climate À.177 À2.00 .048
Idealism .047 .61 .543
Relativism .078 1.07 .287
CPA ?rm type À.165 À2.15 .033
Position À.150 À2.06 .042
Gender À.036 À.50 .619
Impression management À.132 À1.50 .137
Ethical judgments (overall) À.326 À4.44 .000
Model F-value 9.67
Model signi?cance .000
Model R
2
.478
832 W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835
for high relativists, but not for low relativists.
These ?ndings support the hypothesized interac-
tion between ethical climate and relativism.
Discussion and conclusions
This study provides a number of interesting
?ndings relating to Chinese auditors’ ethical deci-
sion processes and raises a number of questions
for future research. We found signi?cant di?er-
ences between local and international auditing
?rms in ethical judgments (overall and moral
equity judgments) and behavioral intentions, with
local ?rm auditors being more likely to judge
aggressive actions as ethical and express intentions
to commit similar actions. However, contrary to
our hypothesis, the ethical climate in local PRC
?rms was not perceived as more negative. In fact,
local ?rm auditors perceived a stronger benevo-
lent/cosmopolitan climate in their ?rms. Given
that the benevolent/cosmopolitan climate was
associated with a lower likelihood of committing
aggressive actions across both ?rm types, these
results suggest that other factors associated with
local ?rms more than o?set the positive e?ect of
the stronger benevolent/cosmopolitan climate.
Our regression results indicate that ethical cli-
mate did not signi?cantly a?ect overall or moral
equity judgments. However, perceptions of an ego-
istic/local climate (one that places primary empha-
sis on the interests of the ?rm) had a highly
signi?cant e?ect on relativism judgments (judg-
ments of what is traditionally or culturally accept-
able). Not surprisingly, auditors who perceived a
stronger egoistic/local climate in their ?rm were
more likely to feel that questionable actions were
acceptable. We also found that three of the four
ethical climate factors had a signi?cant e?ect on
behavioral intentions. Auditors who perceived a
stronger egoistic/local climate were more likely to
express an intention to engage in ethically ques-
tionable actions, while perceptions of stronger
benevolent/cosmopolitan and principle/cosmopol-
itan climates reduced the likelihood of such
actions.
Our ?ndings also indicate that auditors’ per-
sonal ethical orientations (idealism and relativism)
did not have signi?cant main e?ects on ethical
judgments or intentions. As hypothesized, how-
ever, ethical climate and relativism appear to have
signi?cant interactive e?ects on certain types of
ethical judgments and on behavioral intentions.
Speci?cally, the signi?cant e?ect of the egoistic/
local climate on relativism judgments was present
only for high relativists. Similarly, the signi?cant
e?ects of the three ethical climate factors (egois-
tic/local, benevolent/cosmopolitan, principle/cos-
mopolitan) on behavioral intentions were present
only for high relativists. These ?ndings suggest
that high relativists are more susceptible to in?u-
ence from the perceived ethical climate in their
organization.
This study was a preliminary attempt to investi-
gate the ethical climate in Chinese CPA ?rms, and
the in?uence of the perceived ethical climate on
auditors’ decision processes. Like all studies of this
type, practical limitations forced us to concentrate
on a limited number of factors. Due to the docu-
mented signi?cance of ethical climate on auditors’
ethical decisions, future studies should expand on
the current research. Studies could develop and
test models of the antecedents and consequences
of the perceived ethical climate in CPA ?rms.
For instance, future studies could examine the
e?ects of individual di?erences such as cognitive
moral development, as well as the e?ects of
broader considerations such as national culture
on the perceived ethical climate in CPA ?rms.
Future studies could also examine other behav-
ioral consequences of climate perceptions. As pre-
viously mentioned, studies have found that
perceptions of a negative ethical climate in one’s
organization appear to reduce organizational com-
mitment and job satisfaction (Martin & Cullen,
2006). This work could be extended to the context
of public accounting ?rms. The interactive e?ects
of other individual di?erence variables and ethical
climate could also be examined. For instance,
auditors with higher (lower) levels of cognitive
moral development may be less (more) susceptible
to the in?uence of the perceived ethical climate in
their organization. Investigations such as these
could provide a more comprehensive understand-
ing of the role and in?uence of the organizational
ethical climate in CPA ?rms.
W.E. Shafer / Accounting, Organizations and Society 33 (2008) 825–835 833
The issue of ethical climate in CPA ?rms also
has practical implications. Our ?ndings suggest
that the perceived climate has a strong in?uence
on professional auditors’ intentions to commit
questionable or aggressive actions. To minimize
the occurrence of such behaviors, public account-
ing ?rms could attempt to enhance the ethical cli-
mate or culture in the ?rm. Such e?orts could start
with internal research programs designed to assess
the climate in the ?rm and identify areas for poten-
tial improvement. The climate or culture in a ?rm
should be in?uenced by the ‘‘tone at the top’’, so
communicating and emphasizing the importance
of adhering to professional ideals is likely to
enhance the perceived organizational ethical cli-
mate. Because of the interest of international
CPA ?rms in maintaining uniform standards of
quality worldwide, the ethical climate in practice
o?ces in various countries could also be assessed
and compared for consistency.
Acknowledgement
The author acknowledges the ?nancial support
of the Research and Postgraduate Studies Com-
mittee of Lingnan University, Hong Kong Special
Administrative Region, China.
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