Document

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting Association
Vol. 27, No. 1 DOI: 10.2308/bria-50918

2015
pp. 79–98
An Examination of How Entry-Level Staff

Auditors Respond to Tone at the Top
vis-à-vis Tone at the Bottom
Jeffrey S. Pickerd
University of Massachusetts Amherst
Scott L. Summers
David A. Wood
Brigham Young University
ABSTRACT: Prior academic and practitioner literature argues that the ethical tone at the
top of an organization is a key factor in establishing an effective internal control
environment. Drawing on self-concept maintenance theory and in-group bias theory, this
study predicts that entry-level staff auditors will disregard a company’s ethical standards
unless they observe a strong ethical tone from both their partner (tone at the top) and
their supervising senior (tone at the bottom). Also, this study predicts that staff auditors
will be more influenced by the tone of their supervising senior than the partner when
these two individuals provide conflicting tones. In a 2 3 2 experiment that manipulates
the tone set by a staff auditor’s supervising senior and engagement partner, this study
provides evidence consistent with predictions. Further analyses suggest that participants
make less ethical decisions because they are less likely to view the situation as an
ethical dilemma when either the senior or partner exhibits low tone. The results of this
study emphasize that tone at the top is not, by itself, sufficient to produce ethical decision
making; organizations must strive to foster a strong ethical tone throughout the entire
organization, especially at lower levels of the organization.
Keywords: accountability; auditing; control environment; tone at the top; underreporting.
INTRODUCTION
B
usiness leaders, professional organizations, and accounting researchers have provided
anecdotal and empirical evidence that a strong tone at the top provides companies
operational and financial reporting benefits (e.g., see, COSO 1987, 2013). Such literature
describes tone at the top as a culture of control consciousness, integrity, and ethical values from
The authors appreciate the helpful comments and suggestions from anonymous reviewers for the 2012 AAA Annual
Meeting and the 2012 17th Annual Ethics Research Symposium. We are also grateful for the comments and suggestions
of Chris Agoglia, Greg Burton, Scott Emett, Sally Gunz, Ryan Huston, Tamara Lambert, Rina Limor, Kenny Reynolds,
Jay Rich, Jaime Schmidt, Aaron Saiewitz, Chad Simon, Chad Stefaniak, Elaine Wang, and the workshop participants at
the University of Massachusetts Amherst and University of South Florida.
Mary B. Curtis, Associate Editor.
Published Online: September 2014
79
80 Pickerd, Summers, and Wood
upper-level management and the board of directors, which is traditionally thought to influence and
promote ethical decision making by mid- and lower-level employees (Schaubroeck et al. 2012).
Although the professional literature emphasizes that upper-level management is critical to establishing
an ethical tone throughout organizations, ethical tones set by lower-level supervisors could have an
equally impactful role on staff’s ethical decision making. Thus, the purpose of this study is to examine
how entry-level staff auditors make decisions in the presence of sometimes conflicting ethical tones
set by their supervising senior (tone at the bottom) and partner (tone at the top).
Self-concept maintenance theory, which argues that unethical behavior becomes acceptable to
the degree the action can be rationalized by an individual (Mazar, Amir, and Ariely 2008), is used
to motivate this study. The low ethical tone of supervisors at the top and/or bottom may cause entry-
level staff auditors to construe unethical situations as devoid of ethical implications, such that entry-
level staff auditors may act more unethically if either (or both) of their supervisors exhibit a low
ethical tone. Further, in-group bias theory, which suggests that individuals will be more influenced
by close in-group members who are similar to them than by out-group members who are dissimilar
to them, is used to predict that entry-level staff auditors will follow the tone set by their senior more
than the tone set by a partner. This study also examines how individuals perceive their own ethical
decisions under such conditions.
The hypotheses are tested using a case-based experiment that describes a common ethical
decision faced by staff-level auditors: whether to underreport hours worked (S. Lightner, Adams,
and K. Lightner 1982; McNair 1991; Messier, Glover, and Prawitt 2008; Agoglia, Hatfield, and
Lambert 2011; O. Ferrell, Fraedrich, and L. Ferrell 2011). A 2 3 2 between-subjects experiment is
administered to 114 graduate accounting students. Participants are told they went over budget on
the number of hours they spent auditing cash. Ethical tone is manipulated using the tone from both
the engagement senior (high versus low) and engagement partner (high versus low). Participants
then have to make a decision of how many hours to report.
The results are consistent with the hypotheses. Specifically, the findings indicate that tone at the
top and tone at the bottom interact, such that if either the partner and/or the senior exhibit low tone,
then participants are more likely to misreport the number of hours they worked on the engagement.
Furthermore, the findings also show that participants are more influenced by the tone set by their
supervising senior than that of their engagement partner. This suggests that tone at the bottom is a
critical determinant of the ethical decision making of entry-level staff auditors.
The results also reveal that tone significantly affects whether participants interpret the decision
to underreport as an ethical dilemma. When both a partner and a senior exhibit high tone,
participants are significantly more likely to interpret their decision on whether to underreport hours
as an ethical dilemma than in the other conditions. This result suggests that poor tone causes
individuals to cease considering the ethical implications of their decisions, thus allowing them to
maintain a high self-concept when they violate organizational standards.
This study contributes to practice and theory in several ways. First, the findings suggest greater
emphasis should be given to understanding ethical tone at all levels within organizations, with a
particular focus on the ethical tone set by each employee’s immediate supervisor. In addition, prior
research shows that tone does not simply trickle down through an organization (Schaubroeck et al.
2012). Thus, based on these findings and prior research, practitioners and standard setters should
carefully consider how to foster a strong tone at the bottom of the organization, in addition to
encouraging a strong tone at the top.
Second, this paper contributes to a growing body of literature on self-concept maintenance theory
in psychology by specifying one process through which self-concept maintenance operates. The
analysis indicates that in the presence of poor tone, individuals construe their unethical actions into
more compatible terms by removing any ethical implications from the decision. Thus, individuals do
Behavioral Research In Accounting

Volume 27, Number 1, 2015
Tone at the Top vis-à-vis Tone at the Bottom 81
not deceive themselves into believing they have not violated standards. Rather, the results suggest that
individuals come to believe that the dilemma itself is a decision void of ethical implications.
Third, this study makes an important contribution to the accountability literature. Although
prior research has examined the influence of peers and immediate supervisors on entry-level staff
auditors (e.g., see, Wilks 2002) and shown that auditors are influenced by their immediate
supervisor’s leadership style (see, Stefaniak and Robertson 2010; Otley and Pierce 1995), relatively
little research examines the effect of multiple accountabilities in accounting practice.1 This study
extends the accountability literature by demonstrating that accountabilities at different levels of an
organization interact to influence the behavior of lower-level employees.
The remainder of the paper is organized as follows. The second section provides background
literature and theoretical development of the hypotheses. The third section describes the
experiment. The fourth section provides results, and the fifth section concludes.
LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

COSO’s (2013) Internal Control—Integrated Framework (COSO-ICF) emphasizes that the
tone at the top of organizations has a significant impact on the effectiveness of financial reporting.
COSO (2013) indicates that tone at the top provides an ethical foundation that should influence the
ethical decisions of entry-level employees as well as mid- and upper-level managers. The
expectation is that through a firm’s policy, written and verbal communication, and direct action,
upper-level management can create and sustain the organizational tone of the firm.
Practitioners and governmental authorities have provided anecdotal evidence to support the
notion that tone at the top provides firms operational and financial reporting benefits. The
Association of Certified Fraud Examiners (ACFE) and Center for Audit Quality (CAQ) have
opined that the ethical tone set by senior management is critical to preventing, detecting, and
deterring fraud (CAQ 2010; ACFE 2011). This is particularly true of audit firms where the proper
ethical tone, set by ‘‘key management,’’ improves overall audit quality (IFAC 2007). Additionally,
government officials have pointed to poor tone at the top as causing many high profile frauds
(Cutler 2004). Academic research corroborates the notion that tone at the top is important to a
firm’s control environment, overall ethical culture, and financial reporting integrity (e.g., see,
Bamber and Iyer 2009; D’Aquila and Bean 2000; D’Aquila 1998; Hosmer 1994).
Despite strong anecdotal and empirical evidence that an ethical tone at the top provides companies
operational and financial reporting benefits, there are practical and theoretical reasons to examine how
ethical values at all levels within organizations impact ethical decision making. COSO (1987), for
example, notes that ‘‘a strong corporate ethical climate at all levels is vital to the well-being of the
corporation, all its constituencies, and the public at large’’ (emphasis added). Such recommendations
imply that senior executives and directors cannot foster an ethical tone within organizations by themselves.
Rather, employees at all levels of organizations influence the ethical tone within organizations.
Like COSO, the practitioner literature has come to emphasize the role lower-level supervisors
have in impacting the culture and behavior of their subordinates (Kroll 2013). Practitioners are now
trying to develop methods to assess and influence the ‘‘tone from the middle’’ (Sai Global 2013).
The Center for Audit Quality has noted the ‘‘mood in the middle’’ is important in determining the
internal environment and deterring fraud (CAQ 2010). This emphasis from practice clearly
indicates the interest of practitioners in examining how lower-level supervisors influence the
internal environment.
In contrast to practitioners’ recent emphasis on the ethical tone set at levels other than the top of
the organization, academic researchers have provided only limited empirical analysis and insight into
1
Studies that examine multiple accountability relationships include Bagley (2010), Wood (2009), Bierstaker and
Wright (2001), and Gramling (1999).

the important issue of how staff auditors respond to the tone at the bottom and the top of their
organization. One study that has provided some discussion of tones at different levels within the
organization is Lord and DeZoort (2001). Lord and DeZoort (2001) provide insight into how peers
(versus high-level supervisors) influence the ethical decision making of employees. In their study,
auditors decide whether to sign off on materially misstated financial statements, and the authors
manipulate whether participants are pressured (or not) to sign off on the financial statements by an
engagement partner and by a peer auditor formerly on the engagement. The authors find that pressure
from partners significantly increases willingness to sign off on misstated financial statements while
pressure from peers does not. This study differs from Lord and DeZoort (2001) in that it examines a
staff auditor’s supervising senior rather than peers who previously worked on the engagement.
Seniors can influence a staff auditor’s career in many ways that peers cannot (e.g., performance
evaluations, compensation). Additionally, in Lord and DeZoort’s (2001) experimental case, peers no
longer work with participants on the engagement while partners directly supervise the engagement.
Thus, the authors cannot disentangle whether the observed effects are due to the level of tone (tone at
the top versus tone at the bottom) or from current interaction (the participants interact with the partner
on the current engagement but not with the peer). In part due to these differences, this study makes
different theoretical predictions from Lord and DeZoort (2001) about how ethical communications
from a senior and a partner will interact to influence a staff auditor’s judgments and decisions.
Research on accountability suggests that the senior should have an influential role in a staff
auditor’s decision making. However, the accountability literature has provided little insight into
how staff auditors will respond to multiple levels of accountability within the accounting firm.2
Thus, this research adds to the literature and practice by investigating how staff auditors will
respond to the ethical tones provided at different levels within the organization.
Underreporting Time
This study uses a common ethical dilemma in auditing to examine the research question—
whether to misreport actual hours worked to come in under budget (i.e., underreporting hours). The
focus is on this particular ethical dilemma because accurate and honest reporting is critical in
accounting (Rhode 1978; Lightner, Leisenring, and Winters 1983; Akers, Horngren, and Eaton
1998). In the accounting setting, pressure to underreport hours can impair audit quality (Donnelly,
Quirin, and O’Bryan 2003; Stefaniak and Robertson 2010; Agoglia et al. 2011) and has been
identified as a significant ethical dilemma (Akers et al. 1998; Ponemon 1992).3 In fact, accounting
textbooks often use underreporting-hours examples to discuss ethical dilemmas (e.g., see, Messier
2
Bagley (2010) notes that staff auditors who have multiple accountabilities experience negative affect that
inhibits their performance on low-complexity audit tasks. This research extends the work of Bagley (2010) by
examining multiple accountabilities in a different task (ethical decision making), and by examining the relative
influence of a senior and a partner.
3
As argued by Akers et al. (1998), misreporting time can harm the firm and its employees for several reasons.
First, the firm uses reported time to prepare next year’s budget. When employees misreport time, they force
future employees who work on that engagement to either (1) have their performance gauged relative to an
unrealistic budget, or (2) misreport themselves to come in under budget. Second, firms use the information to
negotiate audit fees with clients. While audits are often fixed-fee engagements, negotiations on how much to
charge for future engagements is often partially determined by how many hours were spent on the engagement
the previous year. Misreporting hours can lead to auditors accepting lower fees than they would if hours had
been reported accurately. Third, the firm uses this information when reviewing the effectiveness of the firm’s
audit approach on its current engagement. As a result, misreporting hours may distort a partner’s perception of
whether sufficient audit evidence has been evaluated by the audit team. Fourth, firms use this information to
make resource decisions. Making resource decisions based on distorted information can lead firms to assign
employees too much work, resulting in poor morale and turnover. Finally, the firm uses this information to bill
the client additional fees in certain circumstances. Again, this can lead to a dynamic where the firm continues to
take on unprofitable work.

et al. 2008; Toolbox.com 2009; Farrell et al. 2011). Employees pervasively underreport hours in
practice (Shapeero and Killough 1999; Akers and Eaton 2003; Shapeero, Koh, and Killough 2003),
resulting in unrealistic time budgets and ineffective audits (Otley and Pierce 1996; Donnelly et al.
2003; Coram, Ng, and Woodliff 2004). Thus, understanding how tone at the top and tone at the
bottom impact accountants’ propensity to misreport hours is an important area to investigate.
Three features of this setting allow us to examine important practical and theoretical issues. First,
audit firm policy prohibits staff auditors from misreporting hours, allowing us to examine the influence
of tone at the top and tone at the bottom in the presence of normative standards (Buchheit, Pasewark,
and Strawser 2003; Sweeney and Pierce 2006). Second, staff auditors have incentives to underreport
their time to receive favorable reviews (Rhode 1978; Lightner et al. 1983; Agoglia et al. 2011). Thus,
these issues are examined in the presence of incentives for staff auditors to misreport. Third, Agoglia
et al. (2011) document that auditing managers reward staff for underreporting time and are more likely
to request underreporters on future engagements. Additionally, they find that, compared to the baseline
condition where auditors meet their budget, partners penalize staff who underreport. This suggests that
tone at the top is not necessarily adopted at all levels of the organization (see, Schaubroeck et al.
2012), especially when lower-level managers have different incentives or views than upper-level
managers (David, Kantor, and Greenberg 1994). By examining the decisions of staff auditors, this
study provides additional evidence on how ethical tone within organizations is set.
Self-Concept Maintenance
As mentioned earlier, academic research is lacking in understanding how individuals respond
to various ethical tones within an organization. Self-concept maintenance in social psychology may
provide a more complete picture on how tone may impact individuals within organizations.
Mazar et al.’s (2008) theory of self-concept maintenance was developed to explain cheating
and similar unethical behavior (e.g., see, Mazar et al. 2008; Vohs and Schooler 2008; Aquino,
Freeman, Reed, Lim, and Felps 2009). The theory suggests that when individuals are torn between
competing motivations (gaining a benefit from misreporting hours versus maintaining a positive
self-concept by reporting accurately), individuals have a magnitude range of dishonesty within
which they will act. Specifically, Mazar et al. (2008) propose that people will find a balance
between these two competing motivations, such that they gain some financial benefit by behaving
dishonestly while still maintaining a positive self-concept.4
Mazar et al. (2008) argue that two factors help determine this ‘‘magnitude range of
dishonesty’’—attention to standards and categorization malleability. Attention to standards relates
to the degree of attention people pay to their own standards of conduct (e.g., religious norms), and
categorization malleability is the degree to which individuals can categorize their actions into more
compatible terms and find rationalizations for their actions. This paper focuses on how
categorization malleability might be induced by differing levels of ethical tone.5
4
This theory is similar to, yet different from, motivated reasoning. Motivated reasoning explains how individuals
pursue directional goals subject to reasonableness constraints; however, it does not explain how individuals
manage competing motivations, which are often present when ethical dilemmas arise. In addition, motivated
reasoning does not explain the process by and conditions under which individuals rationalize their decisions
under competing motivations. This experiment seeks to understand how and why individuals make ethical
decisions under (sometimes) competing influences. Thus, Mazar et al.’s (2008) self-concept maintenance theory
is used to provide our theoretical motivation.
5
While we also attempted to measure religiosity as a proxy for attention to standards, there was not sufficient
variation in participants’ responses to analyze this variable. Thus, we focus on how tone at the top and bottom
jointly impact the categorization malleability of subordinates’ ethical decisions. We do not believe the relative
homogeneity in religion will impact the generalizability of the results, as the homogeneity would likely only
cause main effect differences and not impact the interaction that is hypothesized.

This study posits that when viewing a supervising senior or partner promote unethical
behavior, staff auditors will categorize misreporting hours as sensible or appropriate when they
normally would not. The staff auditors (who have an incentive to misreport) can more easily
categorize dishonest behavior as ethical in these situations because they view their supervisor (i.e.,
senior or partner or both) advocating the dishonest behavior. The staff auditor has a built-in
rationalization because someone in authority sees no harm in violating standards.6 Thus, in
situations where one or both supervisors exhibits low tone, staff auditors should categorize
unethical behavior as permissible. In such situations, staff auditors are likely to report their time less
accurately.
On the other hand, when the partner and senior both demonstrate high ethical tone, staff
auditors may not be able to easily categorize dishonest behavior as acceptable. Rather, staff auditors
may have a narrow range of behavior that they view as acceptable or ethical. In such situations, staff
auditors should more accurately report their time. Taken as a whole, the above theory suggests that
organizational tone will only promote the ethical behavior of staff auditors when that tone is high
both at the top and at the bottom. If the tone at either the top or the bottom is not high, then staff
auditors will be more likely to commit ethical violations than when both the top and bottom are
high. This leads to the following interaction hypothesis:
H1: Staff auditors will underreport hours more often when either or both a senior and partner
exhibit low tone than when both exhibit high tone.
In addition to studying the interaction of partners’ and seniors’ tone in influencing staff
auditors, this study also investigates whether the partner or senior has more influence on the
behavior of staff auditors.7 Research in psychology that shows that individuals exhibit an in-group
bias by favoring in-group members over those they perceive as being outside their group is used to
develop predictions (e.g., see, Doise et al. 1972; Dion 1973; Anderson 1975; Blanchard, Adelman,
and Cook 1975; Brewer 1979). Brewer (1979, 308), for example, argues that:
Any categorization rule that provides a basis for classifying an individual as belonging to
one social grouping as distinct from another can be sufficient to produce differentiation of
attitudes toward the two groups.
If individuals perceive that they are members of a group, then they are likely to develop
favorable attitudes and actions toward members of their group (Brewer 1979). Psychologists have
found that in-group bias is strongest when an individual perceives that members of their in-group
are similar to them (e.g., see, Wilson and Kayatani 1968; Billig and Tajfel 1973; Dion 1973). If an
individual belongs to multiple groups, then they are likely to favor the group that they perceive as
most similar to them in characteristics such as age, personality, etc. (Wilson and Kayatani 1968;
Billig and Tajfel 1973; Dion 1973; Finkelstein, Burke, and Raju 1995). Psychology research further
suggests that in-group bias depends on how individuals mentally categorize their social groups
(Dovidio and Gaertner 1999). In other words, individuals can categorize others as in-group
6
We do not believe that this will cause all subordinates to follow all unethical behaviors of supervisors. If the
violation is of sufficient magnitude, then it likely supersedes the magnitude of acceptable violations of the
subordinate such that the subordinate’s attention to their own standards is activated and the subordinate will not
participate in the unethical action. At what threshold a supervisor’s unethical tone triggers individuals to activate
their own standards likely depends on many personal and environmental factors and is an excellent avenue for
future research.
7
While seniors and partners often communicate the same ethical tone within their organization, Agoglia et al.
(2011) and Schaubroeck et al. (2012) both show how incentives and culture can lead different levels of authority
to communicate conflicting messages. In informal discussions with public accounting staff associates, many staff
employees affirmed that different levels of authority often send conflicting ethical messages.

members when they mentally categorize their social boundaries in a certain way and as out-group
members when they categorize their social boundaries differently.
Because of the group dynamics of organizations, in-group bias is likely to play a key role in
how ethical norms are established within organizations. Associates in accounting firms, for
example, may identify (i.e., categorize) themselves as a member of a group of associates, a member
of the engagement staff (the senior associates and associates who perform fieldwork), or as a
member of an engagement team (the partner, manager, senior associates, and associates assigned to
a specific job or client).
In a setting in which underreporting time is a consideration, staff auditors are likely to view
both their engagement partner and senior as members of their in-group. However, the above
research suggests that staff auditors will perceive their engagement senior as more similar to them
than their engagement partner, since staff auditors are likely to be more similar to their senior in
characteristics such as age, technical accounting knowledge, managerial skills, and business
experience (Wilson and Kayatani 1968; Billig and Tajfel 1973; Dion 1973; Finkelstein et al. 1995).
In addition, staff auditors and seniors often perform similar tasks and interact with each other more
frequently than do staff auditors and partners. Thus, staff auditors will likely categorize seniors as
members of a closer in-group than partners.
Importantly, a study by Gino, Ayal, and Ariely (2009) suggests that in-group bias applies to the
theory of self-concept maintenance. Specifically, Gino et al. (2009) find that individuals are much
less likely to behave dishonestly when an out-group member behaves dishonestly than when an in-
group member behaves dishonestly. The results of Gino et al.’s (2009) study suggests that
individuals can more easily justify their own dishonest behavior as appropriate when an in-group
member behaves dishonestly than when an out-group member behaves dishonestly. This reasoning
leads to the prediction that staff auditors will be more influenced by the tone set by their senior than
the tone set by their partner. Thus, in addition to predicting an interaction effect for H1, the
following prediction is also made:
H2: When reporting hours, staff auditors are more likely to follow the ethical tone set by their
senior than the ethical tone set by their partner.
METHODOLOGY
To test these hypotheses, an ethics case study from a popular, entry-level auditing textbook is
adopted (Messier et al. 2008) and used to develop a 2 3 2 experiment in which the tone transmitted
by the engagement supervising partner (high/low) and the engagement supervising senior (high/
low) is manipulated.
Participants
The participants in this study consist of 114 graduate accounting students from a private
university. Reported results are based on 101 participants who correctly answered the manipulation
check questions (described below). Demographic information concerning the participants can be
found in Table 1.8 The demographic information shows that 70 percent of participants had
8
All of the demographical variables were included as covariates in the analysis. Including any of the covariates
does not qualitatively change the results. For purposes of this study, qualitatively similar results suggest the
means are in the same direction and of the same significance level (statistically significant p-value , 0.05;
marginally statistically significant p-value , 0.10) as those reported in the paper. Those who had a Big 4
internship are likely to report more hours but those with a higher GPA are likely to report fewer hours. None of
the other demographic variables are significantly related to how many hours are reported.

TABLE 1
Demographic Information
Results
Variable n ¼ 101
Performed an Internship 71 (70%)
Internship at Big 4 41
Internship Large Accounting Firm 8
Internship Small Accounting Firm 6
Internship Other 16
Signed with Employer 73 (72%)
GPA (standard deviation) 3.76 (0.15)
Months of Work Experience (standard deviation) 8.5 (31.2)
performed an internship and 72 percent had signed with an employer. Also, the average GPA was a
3.76 on a 4.00 scale and participants had 8.5 months of work experience.9 All participants were
paid $10 for their participation. Participants were recruited through an email sent to all first-year
graduate accounting students. Participants had approximately two weeks after the email was sent to
decide whether to participate in the study. Participants who chose to participate were randomly
assigned to one of four experimental conditions (described below).
Accounting graduate students are appropriate surrogates in making generalizations about entry-
level staff accounting auditors in this setting for two reasons. First, as noted in Table 1 and
previously mentioned, most of the participants (72 percent) had already signed an offer to begin
working as a staff-level accountant within the next year. Seventy percent of participants had
performed an internship where they received training on engagement economics, timekeeping, and
ethics. The training they receive during their internship about underreporting time is the same
training they receive when they get hired for a full-time position with the firm. The average
participant also had 8.5 months of accounting work experience. Additionally, the concept of
underreporting time had been described and discussed with students in prior classes by both faculty
and professionals from practice during the participants’ coursework. Thus, these participants had
the level of knowledge and experience in regards to reporting hours that would be typical of an
entry-level staff auditor at an accounting firm.
Second, while the issue of using students as surrogates for practitioners is widely debated,
several researchers conclude that students can be adequate surrogates for practitioners in decision-
making studies (Ashton and Kramer 1980; Peecher and Solomon 2001; Libby, Bloomfield, and
Nelson 2002; Liyanarachchi 2007). Because this experiment focuses on entry-level auditors’
behavioral and ethical decisions in an audit environment, graduate accounting students adequately
represent newly hired accounting practitioners for purposes of this experiment and conclusions.
9
The standard deviation for GPA is smaller than what one might expect because of the competitive admissions
process for entrance into the accounting program, which leads to only applicants with high GPAs being
admitted. There is a relatively high standard deviation for work experience, as a few participants had significant
experience (e.g., over five years) before performing the task. Results are unaffected by controlling for experience
or removing these participants from the analysis.

Experimental Case Study and Independent Variables

An ethics case used in the Messier et al. (2008) auditing textbook is adapted in order to test the
hypotheses. The case states that the participant was recently hired as an auditor for an admired firm.
Participants were told that they had received a week-long training session before beginning work,
some of which focused on accurately reporting hours. To manipulate partner tone, participants then
read a quote by the partner of their first engagement (manipulation is described below). After the
partner manipulation, the participants were told they were sent to an audit client. Participants then
read an ethical dilemma that they faced on their first engagement.
The ethical dilemma was that during the course of the audit, a misunderstanding caused the
participant to spend 12 hours auditing cash for which eight hours was budgeted. The case was
written such that the reason for the overrun was that the participant made a mistake and ‘‘wasted’’
four hours. This ambiguity was added in the case to ensure that participants faced an ethical
dilemma that mirrored those faced in practice. Entry-level auditors commonly spend significant
time at client sites engaged in legitimate yet inefficient audit work, but must decide how to record
their time. Despite entry-level employees’ inefficiency, audit firms require employees to ‘‘accurately
record all time’’ and to not ‘‘‘eat’ time spent on legitimate activities [or] charge only estimated
equivalent productive hours’’ (KPMG 2009, 38–39; emphasis added).
The case then stated that the senior to whom the participant directly reports stopped by at the
end of the day and reminded the participant that they needed to record their hours before they went
home for the day. At this point, the tone manipulation for the senior was introduced. The tone
manipulations were as follows (the same wording is used for the partner manipulations):
High Tone Condition: ‘‘It’s important to be accurate in reporting the actual number of hours
you spent on the engagement. Being accurate in time keeping lets the firm achieve its
goals for its clients and its professionals.’’
Low Tone Condition: ‘‘It’s important for us to come in under budget. Make sure your billable
hours are only those that add value to the audit. Your personal-development time should
not be billed to the client, as making the budget is critical to being a successful auditor.’’10
The same wording is used for both the partner and the senior manipulation in order to maintain
high internal validity. Varying the precise wording could introduce other potential confounds in
interpreting the results.
A statement by the senior/partner was used to transmit the tone manipulation. While there are
many other defensible ways to transmit tone, the communication of superiors is recognized as an
important part of tone at the top (COSO 2013). For example, in discussing the tone at the top, the
new COSO (2013) Internal Control—Integrated Framework notes that both formal and informal
forms of communication are important parts of tone at the top.11 So although tone can be made up
of more than just statements by management (e.g., actions by management), statements are an
important way tone is transmitted.12
10
In the ‘‘Low Tone Condition,’’ we intentionally made the supervisors’ request to misreport hours ambiguous.
That is, the supervisor does not explicitly request that the employee record a certain number of hours. We made
this design choice because prior research shows that employees receive implicit requests to misreport hours more
often than they receive explicit requests to misreport hours (Akers et al. 1998).
11
This communication can be direct or indirect, specific or general, or permanent or temporary in its application
and usage. Our manipulation specifically provides guidelines on underreporting hours, the ethical dilemma, to
prevent participants from misinterpreting the manipulations.
12
Context about actions was not provided as there is no reason to assume that participants viewed the statements as
not reflective of the partners’ and seniors’ behaviors. If participants did have pre-held beliefs about how
statements map into behaviors, then these should have been randomly assigned across conditions and therefore
not a threat to the internal validity of the study.

The independent variables are whether the partner demonstrated high or low tone and whether
the senior demonstrated high or low tone. After participants finished reading the scenario, they were
asked the dependent measures, manipulation check questions, and demographic questions.
Dependent Variables
The primary dependent variable used to test H1 and H2 is the number of hours the participants
reported for the audit. While participants could list any number of hours, the expected outcome is
that the participant would report between eight hours—which is the number the audit program listed
it should have taken—and 12 hours—the actual number that the staff auditor used to finish the task
(all participants were between these numbers).13,14
RESULTS
To verify that the case was thoroughly understood, participants were presented with the ethical
tone manipulations and asked to attribute the statements to their senior or partner. Participants
completed these questions, and other ethicality questions, after the dependent variables were
measured so that they were not prompted by the materials to think of the setting as an ethical
dilemma. They were also asked how many hours the engagement partner and supervising senior
would want them to record. Out of the 114 participants, 101 were successful in remembering the
advice given by their partner and senior. The 13 participants who failed this manipulation check
were excluded from further analysis. The mean number of hours participants reported that the
partner would want them to report when the partner exhibited low tone was 8.9 hours compared to
11.4 hours when the partner exhibited high tone (p-value , 0.01). Similarly, the mean number of
hours participants reported that the senior would want them to report when the senior exhibited low
tone was 8.2 hours compared to 10.7 hours when the senior exhibited high tone (p-value , 0.01).
The results suggest that the intended manipulations were successful.
Hypothesis Testing
Table 2, Panel A contains descriptive statistics for the hours reported and variance of reported
hours by condition (Figure 1 provides a graph of the descriptive statistics). The descriptive statistics
are directionally consistent with the expectations for H1 and H2. Panel B reports the full ANOVA
model tests of H1 and H2.
Because H1 predicts an ordinal interaction, contrast coding is used (see Buckless and
Ravenscroft 1990). The specific pattern predicted in H1 (and contrast coefficients used) is that
reported hours will be greatest in the Partner-High, Senior-High condition (þ3), and that the other
conditions will not differ from each other (1 for the other three conditions). The findings indicate
that the contrast is significant (p-value , 0.01). Thus, the results are consistent with H1 that if
either or both the senior and partner exhibit low tone, then participants are more likely to misreport
hours than if both the senior and partner exhibit high tone.
13
The results are presented based on unscaled values. These results are qualitatively similar if a logarithmic
transformation or a rank transformation is used. For purposes of this paper, qualitatively similar results suggest
the means are in the same direction and of the same significance level (statistically significant p-value , 0.05;
marginally statistically significant p-value , 0.10) as those reported in the paper.
14
While the low tone manipulation suggested participants come in under budget, it appears that participants
interpreted this to mean on budget, as no participants reported less than eight hours even though they could
report any number of hours that they wanted. We thus believe that there would be no difference if the low tone
manipulation were altered to argue for the participant to be ‘‘on budget,’’ as opposed to ‘‘under budget.’’

TABLE 2
Analysis of Reported Hours by Condition
Panel A: Descriptive Statistics—Mean (Standard Deviation)

Senior Low Senior High Marginal Means t-stat
Partner Low 10.54 11.19 10.87 1.53*
(1.73) (1.33) (1.56)
Partner High 10.46 11.95 11.11 4.44***
(1.73) (0.22) (1.49)
Marginal Means 10.50 11.52
(1.71) (1.07)
t-stat 0.16 2.94***
Panel B: ANOVA Results, Dependent Variable—Reported Hours

Source df Sum of Squares F-value p-value
Partner Tone 1 2.99 1.46 0.23
Senior Tone 1 28.49 13.89 , 0.01
Partner Tone 3 Senior Tone 1 4.43 2.16 0.07
Contrast Test of H1 12.14 , 0.01
Contrast Test of H2 16.14 , 0.01
***, **, * Represent p-value , 0.01, 0.05, and 0.10, respectively.

p-values are one-tailed when a directional prediction is made and the results are consistent with the directional prediction.
The contrast test of H1 in Panel B is a comparison of the Partner-Low, Senior-Low (1), Partner-Low, Senior-High (1),
and Partner-High, Senior-Low (1) conditions to the Partner-High, Senior High condition (þ3).
The contrast test of H2 in Panel B is a comparison of the Partner-Low, Senior-High (þ1), and Partner-High, Senior-Low
(1) conditions. Reported hours are used in Panel B.
Variable Definitions:
Partner Tone ¼ 1 if in the experimental manipulations the partner exhibits high tone, and 0 otherwise;
Senior Tone ¼ 1 if in the experimental manipulations the senior exhibits high tone, and 0 otherwise; and
Reported Hours ¼ response to the question ‘‘How many hours do you report for completing the audit program for cash?’’
The case was written so that it actually took 12 hours to complete the audit, but the audit budget listed eight hours
to complete the audit.
H2 predicts that staff auditors are more likely to follow the direction of their senior than their
partner in recording hours. This hypothesis can be tested by examining when the partner and the
senior provide conflicting tones. The hypothesis suggests that when the tone differs and the senior
exhibits higher (lower) tone than the partner, the staff auditors should report more (fewer) hours. H2
is tested using a contrast coding of þ1 for the Senior-High, Partner-Low condition and 1 for the
Senior-Low, Partner-High condition. The results for the contrast test are reported in Table 2, Panel
B. The contrast is highly significant (p-value , 0.01) suggesting that the tone of the senior has
significantly more impact on participants than the tone of the partner. Thus, the data support H2.
Supplementary Analyses
Underreporting Analysis
Whether the senior or partners’ ethical tone impacts the participants’ decision to underreport or
report time accurately is also tested as a binary decision (e.g., underreporting takes the value of 1 if
participants report less than 12 hours, and 0 if they report 12 hours). Table 3, Panel A provides

FIGURE 1
Graph of Interaction Effect of Reported Hours
TABLE 3
Analysis of Number of Participants Underreporting by Condition
Panel A: Descriptive Statistics—Number Reporting Less than 12 Hours/Sample Size
(Percentage of Participants Underreporting)
Senior Low Senior High
Partner Low 13/26 10/27
(50%) (37%)
Partner High 14/27 1/21
(52%) (5%)
Panel B: Logistic Regression Results, Dependent Variable—Whether Participant Reported
Less Than 12 Hours
Source Estimate v2 p-value
Intercept 0.000 0.000 1.000
Partner Tone 0.074 0.018 0.893
Senior Tone 0.531 0.901 0.343
Partner Tone 3 Senior Tone 2.539 4.267 0.019
Pseudo R2 ¼ 0.152
The dependent variable in Panel B is a dichotomous variable taking the value of 1 if the participant reported less than 12
hours, and 0 if they reported 12 hours.
See Table 2 for variable descriptions.

descriptive statistics giving the percentage of participants that underreported in each condition;
Panel B reports the results of a formal statistical test. Consistent with our prior results, when both
the senior and partner communicate a high tone, there is little underreporting. When the senior
communicates a low tone, a higher percentage of the participants underreported than when the
partner communicates a low tone. These results are statistically significant (p-value , 0.05) and
consistent with our previous analysis.
Ethical Dilemma Perceptions

As a further test of self-concept maintenance theory, participants were asked four questions to
determine whether they interpreted the situation in the case as an ethical dilemma.15 As previously
explained, self-concept maintenance theory suggests that individuals are able to justify their actions
in unethical situations so they do not believe they are acting unethically. Although the theory does
not specify how individuals justify their actions, this study contributes to the psychology literature
by testing one way they may do this. We test whether participants are able to view their actions as
ethical because they are less likely to view the situation as an ethical dilemma when the partner and/
or senior exhibit low tone.
This conjecture is tested by analyzing how the tone set by the senior and the tone set by the
partner influences participants’ assessment of whether the situation was an ethical dilemma. The
results of this analysis are presented in Table 4. The descriptive statistics in Panel A and graph
(Figure 2) show that in the Senior-High, Partner-High condition, participants report that the
dilemma was more of an ethical dilemma than in the other three conditions, and this difference is
statistically significant (see contrast test in Panel B, p-value , 0.01).16 The comparisons of the three
cells other than the Senior-High, Partner-High cells are not statistically different from each other (p-
values . 0.10).
A mediation analysis using ordinary least squares following Hayes (2008) was conducted as a
more direct test. Specifically, the analysis tests whether the effect of both the senior and partner
exhibiting high tone on reported hours is mediated by participants’ perception of whether the
situation was perceived as an ethical dilemma. The results show that when the partner and senior
exhibit high tone, it significantly impacts the perception of the ethicality of the situation (a ¼ 0.609;
p-value , 0.01) and the ethicality of the situation significantly impacts how many hours are
reported (b ¼ 0.439; p-value , 0.01). This is confirmed in that a bias-corrected bootstrap (based on
10,000 bootstrap samples) test of the indirect effect is statistically significant (ab ¼ 0.268; one-tailed
p-value , 0.05).17 These results suggest that when the senior and partner exhibit high tone,
participants are significantly more likely to interpret the decision on whether to underreport hours as
an ethical dilemma. This result is consistent with self-concept maintenance theory and provides
additional detail about how individuals are able to make unethical decisions—that is, the individual
15
The four questions were: (1) ‘‘To what degree did the decision you made have moral/ethical implications?’’ (2)
‘‘How would you estimate the seriousness of the consequences of your decision?’’ (3) ‘‘How likely is it that there
is a general consensus among accountants that your decision is moral/ethical?’’ and (4) ‘‘In your opinion, how
would most people rate the fairness of your decision?’’ These questions were adapted from Singer (1996) and
were evaluated on a seven-point scale. To simplify the analysis, the four questions were averaged together.
Factor analysis shows that the four questions load on to a single factor and the results are qualitatively similar to
those reported. For purposes of this paper, qualitatively similar results suggest the results are in the same
direction and of the same significance level (statistically significant p-value , 0.05; marginally statistically
significant p-value , 0.10) as those reported in the paper.
16
The contrast test we conducted (weights are included in parentheses) is that perceptions of the dilemma as an
ethical dilemma will be greatest in the Partner-High, Senior-High condition (þ3), followed by the Partner-Low,
Senior-High condition (1), and both Senior-Low conditions (1 and 1).
17
There is still a significant direct effect, so perceptions of the ethicality of the situation only partially mediate the
relation.

TABLE 4
Analysis of Ethicality Perceptions

Partner Low 4.64 4.91 4.78 0.90
(1.09) (1.11) (1.10)
Partner High 4.78 5.39 5.04 2.24**
(0.99) (0.87) (0.98)
(1.03) (1.03)
t-stat 0.47 1.60*
Panel B: ANOVA Results, Dependent Variable—Ethicality Perception

Partner Tone 1 2.31 2.19 0.071*
Senior Tone 1 4.88 4.62 0.017**
Contrast Test 5.87 0.009***
***, **, * Represent p-value , 0.01, 0.05, and 0.10 respectively.

The contrast tests in Panel B and Panel C are a comparison of the Partner-Low, Senior-Low (1), Partner-Low, Senior-
High (1), and Partner-High, Senior-Low (1) conditions to the Partner-High, Senior-High (þ3) condition.
Ethicality Perception ¼ average of the response to the following four questions: (1) ‘‘To what degree did the decision you
made have moral/ethical implications?’’ (2) ‘‘How would you estimate the seriousness of the consequences of your
decision?’’ (3) ‘‘How likely is it that there is a general consensus among accountants that your decision is moral/
ethical?’’ and (4) ‘‘In your opinion, how would most people rate the fairness of your decision?’’
categorizes the situation itself as being less of an ethical dilemma, allowing the individual to
maintain a positive self-concept even when they are violating ethical standards.
Perceived Influence of Senior versus Partner

As an additional analysis, participants’ perceptions of who they think is influencing them is
examined. One possible explanation of the results is that participants did what the senior wanted
because the senior is who often performs their evaluation and thus has the most control over their
economic future (e.g., raises, promotions). Under this narrative, the staff auditors are making a
conscious decision to do what the senior says in order to curry favor, or at least not be punished, by
the person who has economic power over the staff auditor. If this is what is driving the results, then
participants should view the senior as having more influence over their decisions and participants
should be more likely to do what the senior wants. The overall correlation between what
participants actually report and what they think the partner wants them to report is 0.19 and between
what they think the senior wants them to report is 0.24. The difference between these correlations is
not statistically significant (p-value . 0.10).

FIGURE 2
Graph of Ethical Dilemma Perceptions
To further test this alternative explanation, participants were asked, ‘‘Whose opinion had more
influence on your decision—your senior on the engagement or your engagement partner?’’ The
response scale had nine responses anchored at 1–Your senior, 5–Equal influence, and 9–Your
engagement partner. Five was subtracted from each score so that a 0 means equal influence and a
positive (negative) number suggests greater influence by the partner (senior). An ANOVA was then
conducted and the results are reported in Table 5.
The main effects for Partner Tone and Senior Tone are both statistically significant (p-value ,
0.05 and 0.10, respectively) and the interaction is not (p-value . 0.10). This suggests that
participants believe that whoever is exhibiting high tone impacts their decision to a greater degree
and that, in general, participants believe they follow the partner to a greater extent than the senior
(values are greater than 0), which is opposite the alternative explanation discussed previously. Most
noticeable is when the senior exhibits low tone participants believe they are following the tone set
by the partner to a greater degree, even when the results in Table 1 suggest the opposite. These
results are decidedly opposite the alternative explanation that staff auditors are simply responding to
the person who has more economic power over the individual. Instead, the results suggest that
participants (1) believe they follow what the partner says to a greater extent than the senior, (2)
believe they follow the person who sets the higher tone, even when the results suggest they are not,
and (3) are not fully aware of who influences their decision. A graphic depiction is shown in Figure
3.
CONCLUSION
This study examines how staff-level employees respond to the ethical tone set by senior-level
managers (i.e., tone at the top) and the tone set by their immediate supervisors (i.e., tone at the
bottom). The findings indicate that entry-level employees will underreport their time unless they
observe a strong ethical tone from both their partner and their senior. This study also predicts and
finds that entry-level staff auditors are more influenced by the tone set by their senior than the tone

TABLE 5
Analysis of Perception of Influence of Partner versus Senior

Partner Low 0.73 0.15 0.28 1.89*
(1.69) (1.70) (1.74)
Partner High 1.44 0.81 1.17 0.88
(2.50) (2.42) (2.46)
(2.15) (2.08)
t-stat 1.22 1.54
Panel B: ANOVA Results, Dependent Variable—Perceived Influence

Partner Tone 1 17.44 3.97 0.049**
Senior Tone 1 14.31 3.25 0.074*
***, **, * Represent p-value , 0.01, 0.05, and 0.10, respectively.

p-values are two-tailed.
See Table 2 for variable definitions other than shown below.
Perceived Influence ¼ response to the question: ‘‘Whose opinion had more influence on your decision—your senior on
the engagement or your engagement partner?’’ Values range from 5 to þ5, where higher values indicate that the
partner tone had more influence, and where lower values indicate that the senior tone had more influence.
FIGURE 3
Graph of Perceived Influence

set by their partner. These findings add to our understanding of how accountants respond to ethical
tones at all levels within their organization and provide important evidence that the tone at the
bottom is a key determinant, more so than tone at the top, of the ethical decision making of staff
auditors.
Contributing to the psychology literature, additional analyses suggest that participants were
less likely to view the situation as an ethical dilemma when the senior or partner (or both) exhibited
low tone. This suggests that in the presence of poor tone, individuals deviate from the
organization’s normative standards, yet categorize these unethical actions into more compatible
terms by ceasing to view the decision itself as an ethical dilemma. This finding contributes to
literature on self-concept maintenance in social psychology. We specify a process by which
employees maintain a positive self-concept when violating an organization’s ethical standards. The
results suggest that individuals do not necessarily deceive themselves into believing they have made
an ethical decision. Rather, these results support the notion that individuals recategorize the
decision, thus allowing themselves to maintain a positive self-concept when violating such
standards.
These conclusions deserve some caveats, given the limitations of the experimental approach.
First, this study uses a case-based study that asks participants to imagine a situation that entry-level
auditors would typically encounter in their employment. Although we believe that our case
provides enough detail to capture the judgments and decisions that entry-level employees make in
practice, we cannot rule out the possibility that our case-based approach lacks realism that may
strengthen or weaken the magnitude of our results.
Second, the experiment is operationalized by focusing on whether entry-level auditors
underreport hours in an accounting setting. Although we operationalize our study in this way, we
believe our experiment captures the broader notion of how employees make ethical decisions when
given mixed messages from supervisors at different levels of an organization. Most organizations
within today’s business world have at least two (and often many more) levels of hierarchical
leadership, similar to accounting firms. Likewise, underreporting hours can generalize to other
important situations that require accurate measurement or honest feedback. Thus, this study should
be applicable to areas of managerial accounting and financial reporting where the accurate reporting
of information is crucial to management or investor decision making. Future research should
examine the degree to which these findings are relevant to other business settings.
Finally, participants in the study might have believed that the hours they had recorded would
be the amount of hours billed to client and that they should categorize the four hours they worked
over budget as personal-development time or could be charged elsewhere. It is difficult to say that
this time would qualify as personal-development time since the time in question was related to a
specific audit task and a mistake the staff auditor made. While our measure of the dependent
variable simply asks how many hours the participant would record for the task—leaving it possible
that both personal-development time and time billed to the client to be covered in the measure—we
cannot eliminate the possibility that participants might have thought they would have another
opportunity to record time elsewhere.
This study raises several important questions for future research. In addition to those previously
mentioned, researchers might be interested in examining how multiple levels of authority influence
staff-level auditors over time. Future research may also wish to examine how ethical tone impacts
organizational structures that differ from traditional hierarchical organizations (e.g., matrix
organizations).
Overall, this study provides important insights into how ethical tone at multiple levels of an
organization impacts entry-level employees’ ethical decision making. By recognizing the important
role that immediate supervisors play in influencing their subordinates, organizations can more
effectively promote an ethical culture at all levels of the organization and not simply at the top.

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BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting Association

Vol. 27, No. 1 DOI: 10.2308/bria-50918

An Examination of How Entry-Level Staff

Behavioral Research In Accounting

LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Experimental Case Study and Independent Variables

Behavioral Research In Accounting

Behavioral Research In Accounting

Panel A: Descriptive Statistics—Mean (Standard Deviation)

Panel B: ANOVA Results, Dependent Variable—Reported Hours

***, **, * Represent p-value , 0.01, 0.05, and 0.10, respectively.

Behavioral Research In Accounting

Behavioral Research In Accounting

Ethical Dilemma Perceptions

Behavioral Research In Accounting

Panel A: Descriptive Statistics—Mean (Standard Deviation)

Panel B: ANOVA Results, Dependent Variable—Ethicality Perception

***, **, * Represent p-value , 0.01, 0.05, and 0.10 respectively.

Perceived Influence of Senior versus Partner

Behavioral Research In Accounting

Behavioral Research In Accounting

Panel A: Descriptive Statistics—Mean (Standard Deviation)

Panel B: ANOVA Results, Dependent Variable—Perceived Influence

***, **, * Represent p-value , 0.01, 0.05, and 0.10, respectively.

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

Behavioral Research In Accounting

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, , Represent p-value , 0.01, 0.05, and 0.10, respectively.

, , Represent p-value , 0.01, 0.05, and 0.10 respectively.

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