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Journal of Business Ethics

Erschienen in:

20.04.2016

Does the Accounting Profession Discipline Its Members Differently After Public Scrutiny?

verfasst von: Devan Mescall, Fred Phillips, Regan N. Schmidt

Erschienen in: Journal of Business Ethics | Ausgabe 2/2017

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Abstract

This study examines how the accounting profession disciplines its members for professional misconduct in periods of increased public scrutiny. We conjecture and find that increased public scrutiny of the Canadian accounting profession, marked by the establishment of the Canadian Public Accountability Board in 2003, is positively associated with the severity of punitive sanctions administered by the profession’s disciplinary committees. We find that disciplinary committees are more likely to also demand rehabilitation outcomes and greater future monitoring for offenders. Finally, reporting of discipline outcomes has increased in outlets internal to the accounting profession, but not in publications targeted outside to the public. This latter finding is consistent with the private interest theoretical model of professional ethics developed by Parker (Acc Organ Soc 19:507–525, 1994) as evidence of a latent motivation of the profession to protect its professional private interests. Exploratory analyses indicate that punishment, rehabilitation, and reporting in external publications significantly influence whether offenders return to good standing.

Vorheriger Artikel Discussion of “Recognizing Ethical Issues: An Examination of Practicing Industry Accountants and Accounting Students”

Nächster Artikel Discussion of “Does the Accounting Profession Discipline Its Members Differently after Public Scrutiny?” by D. F. Mescall, F. Phillips, and R. N. Schmidt

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We focus on the ICAO because, for the period of our study, it was the largest provincial Chartered Accountant institute in Canada. Prior to the unification of the three accounting bodies in Canada, ICAO had 38,278 members (ICAO 2014); the next largest provincial society was the Ordre des Comptables agréés du Québec at 18,477 members (Ordre 2012). Differences in the disciplinary processes among provinces, particularly between Ontario and Québec (Bédard 2001), complicate sample expansion to other jurisdictions. Further, with the country’s major stock exchanges and regulators based in Ontario, we anticipated that the greatest public scrutiny would be felt in Ontario, thereby increasing our ability to detect the profession’s responses to such increased public scrutiny. We encourage future research that extends the current study to other Canadian (and foreign) jurisdictions.

See Jamal and Bowie (1995) for comparable categorization of codes of conduct from a theoretical level.

See Shaefer and Welker (1994) and Badawi (2002) for more recent descriptive evidence of disciplinary sanctions of professional accounting bodies.

At the same time CPAB was being established, the Ontario accountancy profession also was undergoing change. On December 5, 2002, the Ontario Legislature unanimously passed the Justice Statute Law Amendment Act, 2002, which proposed to reconstitute the Public Accountants Council (PAC) and give each of the three accounting bodies in Ontario (CAs, CGAs, and CMAs) the authority to issue public accounting licenses directly to their own qualified members. However, the 2002 Act stopped short of specifying the standard of practice that would be expected of public accountants. This uncertainty was clarified on August 29, 2003, when the Ontario government announced the PAC would adopt the CA profession’s standards for qualification and enforcement of its rules of professional conduct (ICAO 2003).

The impact of an accountability board such as CPAB is felt not only by auditors. This broader impact is evident in CPAB’s mandate to improve financial reporting integrity by also engaging those charged with governance, regulators, and standard setters. Viewed through Parker’s (1994) private interest theoretical model of professional accounting ethics, establishment of an accountability board signals an external threat to self-regulation that undermines the authority of the accounting profession.

Quick and Warming-Rasmussen (2002) highlight that, in the European Union, disciplinary systems differ at a national level. However, as Bédard (2001) illustrates, in Canada, disciplinary systems may differ at a provincial level given the provincial jurisdiction of the professional accounting bodies.

This is especially pertinent in the Canadian context given CPAB’s strategic emphasis on “judicious transparency” (CPAB 2012, p. 9).

In contrast to H2a and H2b, we only specify main effects for H3 and H4 given the lack of theory permitting higher order effect predictions pertaining to rehabilitation and monitoring.

For tabulated results, 2003 is included in the pre-CPAB period. To determine the sensitivity to this grouping, all analyses were re-run after excluding data from 2003. The statistical significances of these sensitivity analyses are unchanged from the tabulated univariate and multivariate tests of hypotheses. As an even more conservative test, we also re-ran univariate and multivariate analyses after excluding data from 2002 through 2004. The results of these more conservative tests were materially similar to those tabulated; the few instances of statistical significance loss that arise only for selected punishment measures are presented in footnotes 17 and 18.

All dollars are adjusted for inflation and are presented using a common base of 2012 dollars.

We also provide results using an alternative continuous measure of public interest PUBLIC_PERCENTAGE.

In subsequent untabulated analyses, we replace the indicator variable MULTIPLE_VIOLATION with the continuous measure VIOLATION (the number of violations in the case); results were substantively similar.

Unlike Eq. ( 2 ), Eq. ( 3 ) does not include Year controls because PUBLISHED_INTERNALLY and PUBLISHED_EXTERNALLY are not evenly distributed across years. Estimation of the Logistical Regression with Year dummies results in a reduction of sample for each specification, leaving a resulting sample of 337 observations for the estimation of PUBLISHED_EXTERNALLY and 108 observations for PUBLISHED_INTERNALLY. Despite this reduction in sample size, when we run our analysis including Year dummies, we find substantively similar results. With these reduced samples we continue to find a coefficient (18.91) on POST_CPAB when estimating INTERNALLY_PUBLISHED that is statistically significant at a 1 % level and statistically larger than the coefficient on PUBLISHED_EXTERNALLY at a 5 % level of statistical significance.

H2a and H2b require multivariate analysis so they are addressed in the “Multivariate Analysis” section that follows.

Because subsequent analyses compare private versus public interest code violations where the offender has committed only one violation, we restrict the initial tabulation in Table 1 to this same subsample. This restriction resulted in a loss of 46 % of the sample. To offset this loss of power and also recognize that hypotheses are directional, we report statistical significance in Table 1 using one-tailed tests. All other tables report two-tailed tests.

The $864 represents 2012 dollars, as all dollars are adjusted for inflation to a common base.

As indicated in footnote 9, all analyses were re-run after excluding data from 2003 and from 2002 through 2004. The statistical significances of all results reported in Tables 4 and 5 remain unchanged when excluding only 2003 data. When excluding the 53 observations (13 % of the sample) from 2002 to 2004 data, all results reported remain unchanged with the exception that the coefficient on POST_CPAB reported in column (3) of Tables 4 and 5 is no longer positive and statistically significant at conventional levels.

In additional analyses, the statistical significances of all results reported in columns (2), (4), and (6) of Tables 4 and 5 remain unchanged when excluding only 2003 data. When excluding the 53 observations (13 % of the sample) from 2002 to 2004 data, the results remain unchanged with the exception that the coefficients on PUBLIC_TRI in Table 4 and PUBLIC_PERCENTAGE in Table 5 are no longer statistically significant in column (6).

Note that there is a reduction of the sample from the total sample of 403 observations because CPE_CLASS is not evenly distributed across years and estimation of the Logistical Regression with Year dummies results in a reduction of sample to 371 observations as some years cannot be estimated. When we remove the year dummies and estimate the model on the entire sample of 403 observations the results are substantively similar. The coefficient on POST_CPAB is 0.55 and statistically significant at a 5 % level.

Untabulated multivariate analysis also finds that, consistent with the shifts in SUPERVISION and FUTURE_ACTION, the likelihood of receiving a REINVESTIGATION sanction increases in the post-CPAB era.

Bédard (2001)’s sanction measure is used rather than SEVERITY as we wanted to measure the role of threats as a separate sanction and SEVERITY encompasses THREAT_OF_PUNISHMENT. When we run the analysis replacing PUNISHMENT wtih SEVERITY and omitting THREAT_OF_PUNISHMENT, the results are substantively similar.

Within the restricted sample of 97 cases there were no observations of PUBLISHED_INTERNALLY, therefore transparency was limited to only PUBLISHED_EXTERNALLY actions.

The number of observations in the within-violation type analysis in Column (4) drops to 66 because there must be more than one case within violation type to perform the analysis.

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Titel: Does the Accounting Profession Discipline Its Members Differently After Public Scrutiny?
verfasst von: Devan Mescall
Fred Phillips
Regan N. Schmidt
Publikationsdatum: 20.04.2016
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 2/2017
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-016-3156-0

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