Trust and honor—personal values held dear by many corporate executives—do not frequently translate to the audit process. According to research conducted at Rochester Institute of Technology, this represents a serious flaw in our nation’s accounting control systems.
Bruce Oliver, professor of accounting in RIT’s College of Business and director of RIT’s Center for Business Ethics, states that perceived management integrity has the potential to significantly influence the nature and scope of the independent audit. During that process, evidence is often difficult to authenticate, so auditors are inclined to accept numerous management assertions.
Oliver’s research, “Another Ingredient Contributing to Recent Audit Failures: A Study Providing Insights on Management Integrity,” was presented earlier this month in the Proceedings to the Northeast Business and Economic Conference in Parsippany, N.J. Modeled after a research instrument developed by George England, the paper measures the structure of the personal value system (PVS) of corporate managers.
Based on responses from 217 corporate executives, Oliver points to substantial differences in the role of trust and honor, the personal values of interest, compared to two PVS dimensions, importance and success. Virtually every respondent personally values trust, but only 19 percent indicate that it relates to success. This, Oliver suggests, throws into question the integrity of management behavior when confronted with a situation that may interfere with the ongoing success of one’s career or corporation.
“At a minimum, these results on the trust and honor personal values support the necessity for the social maintenance of a strong monitoring process,” says Oliver. “At the maximum, they suggest that there are quite serious problems with the behaviors of corporate managers.”
Auditors always face the dual obligations of fulfilling their contract with the client and meeting their fiduciary responsibility to the society that provides the CPA profession with its accompanying rights and privileges. Faithfully meeting both obligations can be a difficult task.
“Ethically solving any ethical dilemma is one of the key ingredients in maintaining the professional status that society grants the auditor,” states Oliver. “A ‘healthy degree of skepticism’ is necessary to conduct an effective independent audit.”
Oliver concludes that results on trust and honor support the necessity of maintaining a strong auditing profession. Without solidly independent audits, society has the right and responsibility to alter or remove that professional status.
Bruce Oliver received his Ph.D. in accounting from University of Washington in 1969. Prior to that, he earned his bachelor’s in business administration and MBA from University of Cincinnati in 1964 and 1965, respectively.
Prior to arriving at RIT in 1985, Oliver taught at Rensselaer Polytechnic Institute, the State University of New York at Albany, the Wharton School at University of Pennsylvania, and University of Washington. He has published in a wide variety of journals such as Journal of Business Ethics, Journal of Accounting Research, Journal of the Academy of Management, and Decisions Sciences.
Oliver’s current scholarly interest is in the area of professional ethics, with an emphasis on accounting, and the extent of the stability of the personal value structure of corporate management in the United States. He has served RIT in a number of governance activities including as chair of the RIT Academic Senate. He has also been associate dean of the College of Business and the chair of the accounting department.