Ethical Implications of Management Accounting and Control: A Systematic Review of the Contributions from the Journal of Business Ethics

Accounting can be divided into the major sub-disciplines of financial accounting, management accounting, auditing, and taxation (Endenich and Trapp 2018). Note that in this review, we considered articles that cover MAC issues in the audit sector (i.e., those management accounting articles with a specific industry focus on the audit sector) but excluded all other audit-related articles.

This approach can be further rationalized by Bampton and Cowton (2013) who identified fewer than five accounting ethics articles published in The Accounting Review, which is widely perceived to be a leading scholarly accounting journal (e.g., Bonner et al. 2006), over the two decades that their analysis covered. Against this background, we used EBSCO Business Source Complete to analyze whether significantly more articles on MAC and business ethics have been published in recent years. Our search referred to the three leading mainstream accounting journals (in alphabetical order: Journal of Accounting and Economics, Journal of Accounting Research, and The Accounting Review) as well as to the three leading journals that primarily publish interpretative and critical research (Accounting, Auditing & Accountability Journal; Accounting, Organizations and Society; and Critical Perspectives on Accounting) between 2013 and 2018. We identified three articles related to MAC and business ethics in these journals during this period. These articles refer to topics that are covered by the papers published in the JBE and discussed in this review. Against this background and given our objective of identifying the major topics, methods, and theories in research on MAC and business ethics, it seems reasonable to focus our review on publications from the JBE. Because ethical considerations may play a role in accounting education, we also searched in Issues in Accounting Education and the Journal of Accounting Education for potentially relevant papers but only identified teaching cases that include questions related to ethical decision-making in a management accounting context. However, in light of our focus on research related to MAC and business ethics, these papers are beyond the scope of our review. Moreover, by focusing on publications from the JBE, we intend to ensure comparability between the articles analyzed and a focused and condensed analysis. Future research may complement our analysis by focusing on a broader set of journals.

Ethical decisions can be defined as “both legal and acceptable to the larger community” (Jones 1991, p. 367).

Prior research frequently emphasizes reward systems as an important organizational factor (James 2000; Tenbrunsel and Smith-Crowe 2008; Treviño et al. 2006). These systems are part of the information systems provided by management accountants. However, our review suggests that other MAC information systems affect ethical decision-making as well.

In the following paragraphs, we highlight the interconnections between the different stages of the ethical decision-making process and the decision-facilitating and -influencing role of MAC information using illustrative examples. These examples are not intended to represent an exhaustive list of these interconnections.

We considered all articles that were assigned to an issue or published “Online First” as of October 9, 2017, the day on which we conducted final checks of the completeness of our database.

Note that our review does not consider articles in the area of executive compensation. Although some aspects of executive compensation—such as target setting for compensation formulas—are related to MAC, executive compensation is a very broad area that also touches, e.g., on market and corporate finance, corporate governance and law. To ensure a clear focus of our article, we limited our analysis to MAC used in internal delegation relationships, i.e., between managers and employees but not between top managers and firm owners.

These terms are (in alphabetical order) balanced scorecard, budget*, controller, costing, management account*, managerial account*, management control, performance measurement, pricing, and transfer price. Note that an asterisk can be used in search engines as a substitute for any other letter(s). E.g., the search term management account* will return results for both management accounting and management accountant.

For Step 1 and Step 2, we searched for the aforementioned MAC-related terms in the title of the article, while the term ethic* was searched for in the overall text. To identify additional potentially relevant articles, we broadened the queries in Steps 3 and 4 by searching for both the MAC-related term as well as the term ethic* in the overall text. These queries naturally returned a large number of results (sometimes several dozen or even more than one hundred articles) that were subsequently manually checked for relevant articles by one of the authors.

These 64 articles are marked with an asterisk in the reference list. Note that we considered non-empirical articles on MAC and business ethics published in the JBE in the quantitative-descriptive analysis of this section and for our overall argumentation, but we focus on empirical articles in subsequent sections. The non-empirical articles of our sample comprise the following (in chronological order): Woelfel (1986), Brooks (1989), Loeb and Cory (1989), Ottensmeyer and Heroux (1991), Hansen et al. (1992), Alder (1998), Maguire (1999), Mehafdi (2000), Keeble et al. (2003), Kerssens-van-Drongelen and Fisscher (2003), Martin and Freeman (2003), van den Brink and van der Woerd (2004), van Marrewijk (2004), Rosanas and Velilla (2005), Barsky (2008), Searcy (2012), Rodgers et al. (2015), Hansen and Schaltegger (2016), Cugueró-Escofet and Rosanas (2017), Pryshlakivsky and Searcy (2017), Hahn and Figge (2018), Hansen and Schaltegger (2018) and Murthy and Rooney (2018).

Formerly known as the National Association of Cost Accountants and the National Association of Accountants. For the sake of clarity, we refer consistently to IMA^® in this paper.

IMA^® members are required to comply with these standards; failure “to comply may result in disciplinary action” (IMA^®2017, p. 2). IMA^®’s Statement of Ethical Professional Practice also includes a guideline for “Resolving Ethical Issues” that recommends using established company guidelines, discussion with an immediate or next-level supervisor, requesting advice from IMA^®’s helpline, consulting one’s own legal attorney, and disassociating from the company (IMA^®2017).

In the 1983 version, IMA^® mentions legal requirements and the opportunity to inform a person “engaged” by the company—likely to be the company’s external auditor—on the ethical issue (Loeb and Cory 1989).

Loeb and Cory (1989) distinguish between internal and external whistleblowing. Internal whistleblowing comprises “taking an issue to a level […] that is above an employee’s direct superior” (Loeb and Cory 1989, p. 903) and external whistleblowing “discussing the issue outside the employer organization” (ibid.).

Because MCSs are concerned with aligning the behavior of employees with the interests of their organizations, budgeting and performance measurement are crucial elements of MCSs (Lindsay et al. 1996; Rosanas and Velilla 2005). Given this distinctive role and the significant body of research that evolved in these two areas, we discuss budgeting and performance measurement in separate sections.

Similarly, Sweeney et al. (2010) (see below) show significantly higher ethical evaluations of four audit-related cases describing unethical behavior by female when compared to male respondents. Roxas and Stoneback (2004), building on data from Asia, Australia, Europe, and North America, report that for their aggregated dataset, males’ answers to an ethical dilemma faced by a management accountant were significantly less ethical than females’ answers. Nevertheless, at the disaggregated level, results become insignificant for most countries.

An unethical tone at the top is defined in a manner consistent with Douglas et al. (2001, p. 107) as the “ethical environment within the firm created through management practices and espoused values.”

The controllability principle states that managers should only be evaluated based on measures they can influence to maintain motivation (Burkert et al. 2011; Merchant 2006).

Related extensions of the BSC with social, environmental, and ethical aspects have been named sustainability scorecard and responsive business scorecard (van Marrewijk 2004; Hansen and Schaltegger 2016).