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By Theresa Libby & Linda Thorne
Illustration: John Sapsford
WHILE VIRTUE IS BACK IN FASHION, HOW DO YOU DEFINE IT AND MEASURE ITS IMPORTANCE TO AN AUDITOR'S ROLE?
One of many lessons learned from the recent and now infamous audit failures (Enron, WorldCom and Tyco to name a few) is that rules cannot replace auditors' professional judgment. Transactions can be structured around rules and rules cannot be made to fit every situation. Professional judgment is fundamental to the auditor's ability to fulfil society's expectations, as it ensures that situations are appropriately handled where the rules are not appropriate or do not yet exist. Professional judgment requires not only technical competence but also depends on auditors' ethics and virtues.
While auditors' ethics are related to their formulation of professional judgment, auditors' virtues are related to their exercise of professional judgment. Much research has investigated the role of auditors' ethics in the formulation of professional judgment. For example, auditors' ethics are associated with the ability to detect fraud1 and to detect departures from GAAP and the Codes of Ethics.2 In addition, we know that auditors' ethical reasoning is associated with gender, age, years of employment, political orientation and education.3
It is also generally acknowledged that case teaching and a critical approach to accounting education encourages the development of higher levels of ethical reasoning in accounting students.4 Impressively, recent curriculum changes in professional accreditation in Canada and the US encourage a critical case-based approach to accounting education. It can be inferred from these changes that the profession is looking for ways to improve auditors' professional judgment.
There has been significantly less research concerning the relation between auditors' virtues and professional judgment. We address this issue here by defining auditors' virtues and reporting the results of a CICA members' survey on the importance of these virtues to the auditors' role.
Virtue, a seemingly old-fashioned concept, has become relevant again. It is ethical character or the intrinsic goodness in an individual. The importance of auditors' virtue to professional judgment is recognized by Canadian Codes of Professional Conduct and by recent research. For example, the Institute of Chartered Accountants of Ontario's Code of Conduct indicates "ethical conduct in its highest sense … is a product of personal character — an acknowledgement by the individual that the standard to be observed goes beyond that of simply conforming to the letter of a list of prohibitions." Research shows that virtuous auditors are more likely to comply with their professional judgment even in the face of sanctions or pressure.5 & 6
Nevertheless, little is known about which factors and interventions are most effective in developing and encouraging auditors' virtue. Research from disciplines other than accounting tells us virtues can be either taught or encouraged by practice depending on their type — specifically, intellectual virtues are developed through education and training while instrumental virtues are encouraged by example and practice. To make significant advances toward the development of auditors' virtue, we first have to know what constitutes auditors' virtue and what virtues will result in high quality professional judgment.
To identify auditors' virtues as defined by the Canadian accounting community, we undertook a survey, sponsored by the CICA, of CICA's members. There were three important steps in the research plan. The first was to develop a preliminary list of the virtues. We conducted in-depth interviews with nine CAs identified as experts in ethics and auditing and exemplars of the accounting community, which resulted in an extensive inventory of virtues important to the auditor's role.
Second, we surveyed a random sample of members to determine the relative importance of the auditor's virtues included in the inventory to the auditor's role. More than 400 CAs participated in our survey. About half the respondents were from public practice, the other half from private industry. Participants rated the importance of each virtue in the inventory on a scale of one (not at all important) to five (highly important). See table on page 45 for complete inventory of virtues.
Finally, we compared the survey results to the virtues included in the code of professional conduct to identify the degree of correspondence between virtues in the code and those ranked as important by the accounting community. This provided insight into the importance of the code in influencing and affecting auditors' virtues.
To assist us in understanding the implications of the survey, we divided the inventory of auditors' virtues into the two categories. Intellectual virtues indirectly influence individuals' intentions whereas instrumental virtues directly influence individuals' actions.7
As applied to the audit context, intellectual virtues influence auditors' intention to exercise professional judgment. The most important intellectual virtues are, in order, integrity, truthfulness, independence and objectivity, which captures auditors' honesty of character. The least important intellectual virtues are benevolence, altruism, warmth, cheerfulness and sensitivity, which captures auditors' pleasant characteristics. Our results suggest that honesty of character is fundamental to the auditors' intention to act in accordance with ideal professional judgment. In addition, these findings suggest that possession of pleasant characteristics is not as essential to the auditor's role. In other words, a virtuous auditor is honest but needn't necessarily always be pleasant.
As applied to the audit context, instrumental auditor's virtues are directly associated with auditors' exercise of professional judgment. Respondents ranked diligence, alertness and carefulness as the most important virtues influencing auditors' actions, which capture auditors' thoroughness on the job. In addition, our results showed that courage, cooperativeness, and resourcefulness were ranked as the least important, which captures auditors' ability to deal with others and unusual situations. Our results suggest that thoroughness on the job is essential to auditors' exercise of professional judgment.
Nevertheless, somewhat surprising was the lack of importance afforded the ability to deal with others and unusual situations to auditors' virtue.
Our results tell us several important things about auditors' virtues. First, the extremely high scores given to some virtues suggest the importance afforded auditors' virtues by the accounting community. For example, several virtues, including integrity and truthfulness, received perfect or near perfect ratings across the entire group of respondents. And, these high rankings were for both instrumental and intellectual virtues. We believe these findings suggest the integral role that virtue plays in both the intention to exercise professional judgment and the exercise of professional judgment, and the necessity of possessing both intellectual and instrumental virtues for auditors.
Second, our results suggest a strong consensus among three respondent groups on the importance of various virtues to the auditor's role. We specifically compared responses of auditors in public practice, private industry and those in the professional institutes. Very little discrepancies existed. For example, the ranking of intellectual virtues was consistent across the group of respondents in public practice and in industry. For respondents from the professional institutes, the first two virtues — integrity and truthfulness — were ranked as the most important with perfect scores. The three next most important virtues were objectivity, independence and being principled. We believe our findings suggest there is no expectations gap regarding what constitutes a virtuous auditor among the different constituencies of the audit community. This does not imply an expectations gap doesn't exist between the public and the audit community, but suggests an expectations gap does not exist within the audit community itself.
Third, our research provides insight into the importance of the code of conduct in influencing auditors' virtues. We compared the virtues included in the code to those in our survey. All the virtues explicitly included in the code were highly ranked, virtues not explicitly included in the code were not highly ranked. For example, highly ranked virtues explicitly mentioned in the code were honesty, integrity, independence, objectivity, carefulness, unwillingness to bow to pressure and concern for the public interest. In contrast, other virtues, such as courage, not highly ranked were not explicitly named in the code. It may be inferred from this that the code is instrumental in defining and shaping the definition of auditors' virtues as manifested and accepted by the professional accounting community. Specifically including all important auditors' virtues in the code may allow the profession to take an important step toward encouraging auditors to exercise professional judgment according to a high ethical standard.
Now that we have identified the significant virtues as defined by the audit community, we have the tools to consider how auditors' virtues can be developed and encouraged in current members of the professional accounting community. Both ethicists and educators suggest the best approach to developing auditors' virtues depends upon whether we are concerned with intellectual or instrumental virtues. Intellectual virtues are best developed through education and training, while instrumental virtues are developed through mentoring, modeling, habit and practice. As applied to auditors, this suggests that auditors' intention to exercise professional judgment can be best facilitated through education and professional training while auditors' exercise of professional judgment is best facilitated through role-modeling and mentoring in the classroom and work-place. To this end, the explicit inclusion of the respective types of auditor virtues as core competencies — intellectual virtues to be included in the final written evaluation and instrumental virtues to be evaluated and observed in the workplace — in professional testing and training may result in more virtuous auditors.
Although our research takes the first step to initiating research on auditors' virtue, more work remains to be done. Research is needed to develop a measure of auditors' virtue to facilitate the identification of factors that are associated with and influence auditors' virtue. Now that we have an idea of what constitutes auditors' virtue, we may be able to ask what auditors' virtue should be. Normative research evaluating the appropriateness of the virtues identified in our survey is needed to ensure that society's expectation is met by virtuous auditors. If we can learn what virtues are best associated with the exercise of professional judgment according to the highest ethical standard and understand what factors, approaches and interventions can promote those virtues, society will be better served by the audit profession.
Theresa Libby, PhD, CA, is associate professor at Wilfrid Laurier University's School of Business and Economics. Linda Thorne, PhD, CA, is associate professor at York University's Schulich School of Business
Technical Editor: Michel Magnan, PhD, FCA, associate dean, John Molson School of Business, Concordia, and Lawrence Bloomberg chair in accountancy
References
1. Bernardi, R. 1994. Fraud detection: The effect of client integrity and competence on auditor cognitive style. Auditing: A Journal of Theory and Practice 13 (Supplement): 68-84.
2. Sweeney, J. and Roberts. R. 1997. Cognitive moral development and accountant independence. Accounting, Organizations, and Society, 22: 337-352.
3. Jones, J.; Massey, D.; and Thorne, L. 2003. A Review and Synthesis of the Empirical Research on the Ethical Dimension of Auditors' Professional Judgment Process. Working Paper, York University.
4. Bernardi, R.; Downey, A.; Massey, D.; and Thorne, L. 2002. Critical Thinking and the Moral Reasoning of Intermediate Accounting Students, Research on Accounting Ethics, 8: 73-102.
5. DeZoort, T. and Lord, A. 2001. The impact of commitment and moral reasoning on auditors' responses to social influence pressure. Accounting, Organizations and Society, Vol. 26, 3: 215-236.
6. Windsor, C., and Ashkanasy, N. 1996. The effect of client management bargaining power, moral reasoning development, and belief in a just world on accountant independence. Accounting, Organizations and Society, Vol. 20: 701-720.
7. Pincoffs, E. 1986. Quandaries and virtues; University Press of Kansas. | 
