Pergamon

Accounttng, Organizaffons and Society, Vol. 20, No. 7/S, pp. 701-720, 1995
Copyright 0 1995 Elsevier Science Ltd

Printed in Great Britain. All rights reserved.

0361-3682/95 $9.50+0.00

03613682(95)00018-fii

THE EFFECT OF CLIENT MANAGEMENT BARGAINING POWER, MORAL

REASONING DEVELOPMENT, AND BELIEF IN A JUST WORLD ON AUDITOR
INDEPENDENCE*

Gr@tb

CAROLYN A. WINDSOR
University (Nathan Campus)
and

NEAL M. ASHKANASY
The University of Queensland

Abstract
In two studies, practising auditors responses to hypothetical audit conflict scenarios were used to test
hypotheses that moral reasoning development and belief in a just world influence resistance to client
management power. Based on a mixed factorial ANOVA design, results confirmed that auditor independence is interactively determined. Three styles of auditor decision-making emerged: autonomous,
accommodating and pragmatic. Autonomous auditors were responsive to personal beliefs, such
that those with strong just world beliefs were more likely to resist client management power. Pragmatic
auditors were responsive to client management power, irrespective of beliefs. Accommodating auditors
responded both to personal beliefs and client management power; they comprised the least resistant
group, especially when they believed in an unjust world.

The ethical dilemmas faced by authors who

may be forced to compromise their independence when pressured by client management
power provided the focus of the research
described in this paper. These issues are currently attracting attention in the academic literature (e.g. Ponemon & Gabhart, 1990) and
carry implications for audit practitioners (see
Ashkanasy & Windsor, 1994; Godsell, 1993).
The paper extends Ponemon and Gabharts
(1990) study of auditor independence judgments, by including economic and personal
belief variables in the context of an audit conflict with client management. We argue that

the process of auditor independence is complex and that no one factor can provide an
instant remedy.
In this paper, the concept of auditor independence is first developed, based on a complex decision-making process, which incorporates Kohlbergs (1969) moral reasoning
development construct, and Lemers (1980)
concept of belief in justice. In order to overcome concerns about the internal and external
validity of results based on hypotheses involving high-level interactions (Keppel, 1989), a
two-stage mixed factorial repeated-measures
design was employed in an examination of

The authors acknowledge with thanks Ferdinand Gul, Errol Iselin, and Lawrence Ponemon for their contributions and
encouragement. We also thank the anonymous reviewers for their comments on an earlier draft of this paper which was
presented (in poster form) at the American Accounting Association ABO Research Conference, San Antonio, 10-l 1 March
1994, and the anonymous reviewers of the present version of this paper. The support and willing participation of public
accounting firms is acknowledged with thanks.
l

701

702

C. A. WINDSOR

and N. M. ASHKANASY

auditors independence judgments in the face

of client management bargaining power.
Auditor independence
Auditors are required to remain independent
of the client but at the same time depend upon
the client for their livelihood through fees
(Mautz & Sharaf, 1961). An audit conflict may
develop, however, when auditors request disclosure of information that client management
may not wish to reveal in financial reports to
the public. The conflict becomes an ethical
dilemma when the auditor is confronted with
the decision to compromise independence and
integrity for economic gain. In the present
study, evidence about the existence of audit
dilemmas was collected through interviews
with senior audit partners from first-tier multinational public accounting firms. The partners
maintained that auditors have to balance professional ethics with the economic practicalities of operating a viable business. Yet,
philosophically, auditors are supposed to serve
society, rather than to focus on economic compensation (Gas, 1992; Mautz & Sharaf, 1961).
Gaa (1992) has argued further that there is a
social contract between the auditing profession and the rest of society which establishes
reasons for auditors to act ethically. Thus, auditors are confronted with balancing I versus
we considerations (Etzioni, 1988). I represents the self interested, pragmatic considerations of personal and economic gain; we, on
the other hand, encompasses professional and
ethical reponsibilities to remain independent.
The concept of auditor independence is integral to professional codes of ethics and standards which guide auditors in practice (Mautz
& Sharaf, 1961). Auditors must maintain independence, defined by Mautz and Sharaf (1961)
as a lack of bias in forming delicate judgments (p. 206). Auditor independence should
therefore be characterized by integrity and an
objective
approach
to professional
work,
described by Mautz & Sharaf (1961) as a state
of mind. The present paper focuses specifically on independence, which is based on the
view that auditors are social human beings,

subject to a full range of emotions, beliefs,

and prejudices (Gas, 1992). This is in contrast
to the objective view, where the obligation is
imposed on auditors to be fair, intellectually
honest, and free of conflicts of interest (IFAC,
1990, Part A, para 1.1).
A key component in auditor independence is
the nature of the auditor-client
relationship
(Goldman & Barlev, 1974). Research in this
area, however, has emphasized issues related
to firms switching auditors (e.g. Eichenscher
& Shields, 1983; Craswell, 1988) and issues
of individual auditor independence from auditor and third party perceptions (e.g. Gul, 1991;
Knapp, 1985, 1987; Pany & Reekers, 1988;
Shockley, 1981). Until recently, however, little
research has focused specifically on auditors
cognitions and psychological aspects of independence (Bamber, 1993). Shaub et al. (1993)
have argued this is because the accounting profession has tended to rely on authoritative
codes of ethical conduct and practice standards. Recently, a number of researchers
(e.g. Lampe & Finn, 1992; Ponemon, 1992;
Ponemon & Gabhart, 1990, Shaub et al.,
1993) have begun to look at cognitive processes as a means of seeking a deeper understanding of auditor independence
decisionmaking. For example, Ponemon and Gabhart
(1990) examined the impact of moral reasoning development on auditor decision-making,
and proposed that three levels of auditor independence could be identified, corresponding
to Kohlbergs (1969) levels of moral reasoning
development. Cushing (1990), however, has
argued that the cognitive perspective, taken
in isolation, may be overly restrictive, and
needs to be incorporated into more comprehensive models of decision-making. He suggests that Ponemon and Gabharts (1990)
model could be extended by including the
effect of economic variables in a materiality
judgment situation. We argue further that personal beliefs about justice also play an important role in the way people process important
information (Lerner, 1991). Lerners (1980,
1981) concept of belief in justice is relevant
in the auditor independence context because

AUDITOR

INDEPENDENCE

justice is an inseparable component of integrity

(Karniol & Miller, 1981). The aim of the present research, therefore, was to extend our
understanding of auditor independence judgments by an examination of the combined
impact of psychological factors and client economic power.
Complex
decision-making
Mautz and Sharaf (1961) described auditor
independence as a state of mind, but this
simple definition does not reveal the complexities of the auditors decision-making process.
Shaub et al. (1993) for example, adapted Hunt
and Vitells (1986) model of general theory of
marketing ethics, and showed that auditors
sensitivity to ethical dilemmas depends upon
their attitudes to moral rules. Lampe and Finn
(1992) developed a five-element decisionmaking model by adapting Jones (1991) issue
contingent
model. The fiveelement
model
combines
three cognitive
developmentalist
stage models and was shown to describe ethical decision-making
better than a Codeimplied
model. Bonner
and Pennington
(1991) also argued for adoption of models of
auditor decision-making based on cognitive
audit task analysis.
The cognitive-based models (as described by
Lampe & Finn, 1992) however, do not take
into account the wide range of factors potentially affecting auditor decision-making.
For
example, Gaa (1992) criticized Lampe and
Finns (1992) five-element model for its failure
to address the full range of complexities of
auditor independence judgments, and suggests
a more complicated explanation based on Trevinos (1986) interactionist model. In effect,
Gaa (1992) calls for a more sophisticated
theoretical model of decision-making which
goes beyond cognitions.
The interactionist
approach focuses on combinations of personal
and situational variables (rather than on single
variables acting alone, see Trevino, 1986) and
thus provides a more sophisticated and realistic
indication of human decision-making processes
in real situations (which are described in terms
of high-order interactions, see Keppel, 1989).

703

However, while the Trevino (1986) model

provides an appropriate theoretical basis, it
gives little guidance in respect of empirical
testing, and therefore needed to be adapted
for use in the present study. This was accomplished using a model developed by Ashkanasy
(1989) in the context of evaluative decisionmaking. This model (see also Ashkanasy,
1991) is based on a general information processing framework in which cognitions are triggered by contextual
information,
and are
affected by deeply embedded psychological
beliefs when an immediate decision is difficult
to achieve. In essence, the model posits that
impressionistic
and cognitive processes are
influenced by personal beliefs, which are in
turn reflected in interactions between situational contingencies and cognitive processes.
The model is also consistent with findings by
Brief et al. (1991) that personal values interact
with perceptions of accountability and explicitness to determine responses to ethical dilemmas in managerial decision-making.
By substituting the variables from Trevinos
(1986) conceptual model of ethical decisionmaking for those in the original Ashkanasy
(1989) model, it was possible to derive a testable model in the present instance. In this case,
the three variables were: (1) economic dimensions of client bargaining power; (2) moral reasoning development (Kohlberg, 1969); and (3)
belief in a just world (Lerner, 1980, 1981). We
expected to find that auditors decisions in
response to client management economic bargaining power would be interactively influenced by cognitive processes involving moral
reasoning and beliefs.
Client management
bargaining
power
Client management has an inherent bargaining advantage because auditors depend upon
client fees for their livelihood (Mautz &
Sharaf, 1961). At the same time, auditors may
need to qualify their clients financial report in
a manner which could harm the client managements interests (Goldman & Barlev, 1974).
Further, Hill and Jones (1992) have shown
that client management has the bargaining

704

C. A. WINDSOR

and N. M. ASHKANASY

advantage by virtue of corporate managements

position at the nexus of implicit and explicit
contracts that constitute the firm. Antle and
Nalebuff (1991) have argued also that client
management has superior knowledge of the
firms income. Using a game-theory model of
client-auditor
negotiations of financial statements, they demonstrated that client management always has the negotiating edge.
Auditor independence is further threatened
by the very nature of the relationship between
client management and the auditor, which is
fostered by professional practice standards.
These standards require auditors to have a
sound knowledge of their clients businesses
and industries, hence setting the scene for a
close professional relationship, and likely to
result in reduced independence. The auditorclient management relationship is strengthened
over time as the auditor develops specialized
expertise
(which would lose its value if
applied to another relationship, see Levinthal
& Fichman, 1988).
In the present study, we have conceptualized client bargaining power in terms of situational factors that exert pressure on auditors,
and therefore influence their independence
behaviour. The initial interviews with senior
audit partners indicated that the three primary
dimensions of client management power were
(1) client financial condition, (2) size of client
fees, and (3) whether or not the client calls
tenders for audit work.
Financial condition
of the client. Auditors
dealing with clients in poor financial condition
are likely to face a higher level of legal liability
than if the client was in good financial condition (Farmer et al., 1987; Palmrose, 1987). In
this respect, Knapp (1985) found also that
financial statement users perceive that management is more likely to obtain its preferred resolution in a conflict when the client is in a good,
rather than poor financial condition. It follows,
therefore, that auditors would be likely to exercise greater caution when dealing with clients
who are in poor financial condition.
Size of the client fee. Mautz and Sharaf
(1961) drew attention to the problem of the

auditors dependence on client fees as a potential economic factor that could affect auditor
independence.
This is supported
by Gul
(1991) who found that, when fees are a significant proportion of the auditors total revenue,
third party perceptions of the auditors ability
to withstand management power are adversely
affected. Gul (1991) explained this finding in
terms of Knapps (1985) observation that auditors are more responsive to client management
power when the client provides a significant
proportion of the auditors income.
Tendering. When client firms invite prospective auditors to tender for provision of audit
services at a competitive cost, there is a risk
that auditors may experience
difficulty in
remaining independent. This is because client
management can overtly or covertly threaten to
replace the auditor. Craswell (1992) for example, showed that the introduction of tendering
led to an increase in the frequency of auditor
switches and fee reductions. Hence, client
management can use tendering to place more
economic pressure on the auditor, thus impairing independence.
Moral reasoning
development
The present study utilized Kohlbergs (1969)
moral reasoning construct. Although this construct has been subject to some controversy
(see Modgil & Modgil, 1986) it has been used
successfully as a cognitive measure in a number
of studies in accounting and organizational settings over recent years (Gaa, 1992; Ponemon,
1992; Ponemon & Gabhart, 1990; Trevino,
1986). Gaa (1992) argued that the construct is
a measure of moral expertise in the specific
context of auditor judgments. It is based on a
fundamental assumption that moral reasoning
reflects an underlying organization of thinking
which becomes more complex and sophisticated with the individuals moral development
(Kohlberg, 1969). Rest (1986) argued further
that the word moral as used here involves
social interaction, and emphasized its applicability to concepts of justice or fairness.
Kohlbergs
theory includes three broad
levels of moral reasoning development, each

AUDITOR

INDEPENDENCE

composed
of two stages. Moral reasoning
development involves the individuals transition from stage to stage in an invariant, irreversible sequence. At the preconventional
level,
stages one and two, an individual is concerned
consequences,
particularly
with
concrete
reward and punishment affecting individual
immediate interests. At the conventional level,
or stages three and four, right is conforming
to the expectations of acceptable behaviour of
significant others; for example, larger society, a
peer group or family.
At the post-conventional level, or stages five
and six, right is determined by universal
values or principles;
for example,
saving
human life. When laws violate these principles, the individual may act in defiance of the
law. The individual at this level sees beyond
social norms, laws, and authority of groups
and indivdiuals regarding judgments of right
and wrong.
Ponemon and Gabhart (1990) used Kohlbergs moral reasoning construct in a study of
auditor independence
under varying conditions of internal sanction. They found that
development
affected
moral
reasoning
response to penalty sanctions; auditors with
low (pre-conventional) levels of moral reasoning development were more sensitive to penalty sanctions than auditors with higher levels
of moral development.
These results were
based on Rests (1979) P-score, which is a
continuous measure, rather than a stage measure. Ponemon and Gabhart (1990) maintain
that P-scores are strongly associated with Kohlbergs stages (see Colby & Kohlberg, 1987)
and constitute a satisfactory operationalization
of the Kohlberg stage concept. In the present
study, we anticipated that higher levels of
moral reasoning (measured using P-scores)
would be associated with greater resistance to
client management bargaining power.

Personal
beliefs in a just world
Finally, personal beliefs were operationalized
in the present study using a measure of belief in
a just world. This construct is appropriate to

705

test auditor independence because justice and

integrity are intimately intertwined (Karniol &
Miller, 1981). Lerner (1991) argues that the just
world motive is a tendency to believe the
world as operating in a consistent, just manner
where the good are rewarded and the bad are
punished. The belief in justice operates at a
preconscious level and is revealed indirectly
in the persons reactions to a given event (Lerner, 1980, 1991). Research has convinced Lerner and his colleagues that the commitment to
justice in peoples lives is not simply a principle
governing how to view their situation, but as
the central organizing principle in how they
acquire and allocate desired resources (Lerner, 1991). At a conscious level, people with
just world beliefs appear to others and themselves to have a realistic view of injustices, but
plan their lives as if they live in a just world as
means of bringing order to their lives and coping with lifes tragedies. Thus, individuals with
just world beliefs are committed to a personal
contract that presupposes people deserve their
outcomes and receive, in the long run, what
they are entitled to. Hence, this personal contract becomes a catalyst for the individual to
relinquish immediate outcomes for long-term
rewards. In contrast, people with unjust world
beliefs believe that people are not rewarded or
punished in accordance with their actions, and
feel that they are victims. These people therefore behave as if they have little control over
lifes events.
To measure justice beliefs, we used the belief
in a just/unjust world dimension identified by
Collins (1974). Lerner (1980) has suggested
this is an appropriate measure of beliefs in
justice. It is a dimension of Rotters (1966)
locus of control scale, which measures a
personality
construct
derived from social
learning theory (Rotter, 1954). Research has
shown that Rotters (1966) locus of control
construct is multidimensional
(e.g. Collins,
1974) and subsequent studies have specifically
replicated Collins belief in a just world dimension (Ashkanasy, 1985; Zuckerman & Gerbasi,
1977a,b; Zuckerman et al. 1977). Zuckerman
and colleagues have provided evidence that

C. A. WINDSOR and N. M. ASHKANASY

706

the unjust/just world dimension is reliable,

valid, and independent of the other locus of
control dimensions.

Hypotheses
Based on the Ashkanasy (1989) and Trevino
(1986) models, we have argued that auditor
independence is affected by moral reasoning
development and personal beliefs embedded
in the preconscious and activated by ethical
dilemmas. Thus, when auditors are pressured
by client management bargaining power, the
extent to which personal beliefs affect their
independence is determined by the auditors
level of moral reasoning development. We
expected to find in this study that auditors
with highly developed moral reasoning would
be influenced by their personal beliefs about a
just world, while those with a lower level
would be influenced primarily by client management bargaining power. Auditors between
these extremes were expected to exhibit characteristics of both of these groups. In essence,
a three-way interaction was predicted, demonstrating that personal beliefs and moral reasoning interact with client management power in
complex decision-making situations. The nature of this interaction is illustrated in Fig. 1.
Specific hypotheses are:

High moral reasoning auditors resistance to client

management power is affected by just world
beliefs. They are less likely to resist when they
believe in an unjust world than when they believe
in a just world.

(31)

Low moral reasoning

management power,
Overall, they are less
ing auditors to resist

auditors are affected by client

but not by just world beliefs.
likely than high moral reasonclient management power.

High moral reasonmg

(Post-conventional) auditors

Low moral reasoning

(Pie-conventlonat) auditors
Mid moral reasoning
(Conventional) auditors
Just world
beliefs

i
Unjust world
beliefs

Hypothesized pattern of auditor resistance to client

management power.

Mid-moral reasoning auditors are affected by client

management power and just world beliefs, They
are less likely than high moral reasoning auditors
to resist client management power. Further, they
are less likely to resist when they believe in an
unjust world than when they believe in a just
world.

Analysis method
The purpose of the present study was not
to deal just with auditors responses to economic factors (e.g. GUI, 1991; Knapp, 1985).
Nor did we intend to address the effect of
psychological factors alone, as was done by
Ponemon and Gabhart (1990).
Rather, the
focus in the present paper is on the interaction between client economic factors, moral
reasoning development, and beliefs in a just
world.
To test such interactive hypotheses, a mixed
factorial ANOVA research design with three
repeated measures and two between-group

The vertical axis in this figure is auditor resistance to client pressure (represented by the economic variables: client
financial condition, size of fees, tendering). As such it represents difference scores across levels of economic variables. The
graph therefore depicts a three-way interaction between economic variables (ordinal difference scores), just world beliefs
(abscissor), and moral reasoning development group.

AUDITOR INDEPENDENCE

independent variables was appropriate.2 The

three repeated measures were the economic
factors identified by the senior audit partners:
(1) client financial condition; (2) size of fees;
and (3) tendering. The two between-group
independent variables were (1) level of moral
reasoning and (2) belief in a just world. The
dependent variable was a measure of the
extent to which the auditor would acquiesce
to the wishes of client management.
A problem in studies of high-order interactions is that such interactions may be unstable
(Keppel, 1989). This research was therefore
carried out as two independent studies: a first
or initial study; and a second or validation study
based on a larger sample to increase the power
of analysis. While differences in the results of
studies
the
initial
and validation
were
expected, we hoped to be able to demonstrate
that the underlying theory would apply in both
instances.

INITIAL STUDY
Method
Experimental instrument. This consisted of
a questionnaire booklet in three parts: (1) the
ethical dilemma; (2) Collins (1974) locus of
control (LOC) scale; and (3) Rests (1979) DIT
scale.3 The moral reasoning development and
just world belief measures were administered
after the ethical dilemma so that the scenarios
used in the DIT and the LOC measure did not
bias respondents perceptions of the audit conflict (see Trevino & Youngblood, 1990).

707

Ethical dilemma. Cushing (1990) suggested

using an audit conflict involving disclosure of
an accounting transaction that would have a
material effect on the clients financial statements. In the present study, this situation was
presented in short case-study form to test auditor independence under pressure of client management power using three repeated measures.
The conflict provided in the booklet concerned
the materiaIity of certain unrecorded liabilities
discovered by the firms auditors. These liabilities consisted primarily of expenses incurred
in the previous year which were neither paid
nor recorded until the following year. Respondents were asked to assume that they were the
auditors of the hypothetical firm where client
management disagreed with the auditor that
the amount was material, with 8% materiality.
The figure of 8% materiality level was recommended by the senior audit partners as a way to
create an element of realistic ambiguity, and to
ensure that the decision-making task required
professional judgment.*
The aim of the dilemma was to place auditors in a conflict situation with client management, whose economic bargaining power was
represented by eight scenarios. These were
varied by presenting three statements: client
financial condition (good or bad); size of fees
(large or small); and external audit tendered
(yes or no). Respondents were requested to
make a subjective
judgment
about the
dilemma using a seven-point Likert scale,
where 1 indicated a very low likelihood that
they would acquiesce to client managements

This approach was adopted in preference to regression for three reasons. The first is that Kohlbergs theory implies
discrete groups, leading explicitly to group-specific hypotheses (see also Ponemon & Gabhart, 1990). The second reason is
that hypotheses are framed in terms of high-order interactions, which are difficult to interpret in regression models. Finally,
predictions relating to levels of moral reasoning are nonlinear, and therefore are inherently not amenable to analysis by
techniques based on linear regression. ANOVA focuses only on between-group differences and does not assume linearity
across factorial groupings (Keppel, 1989).
3 Copies of the instrument may be obtained by writing to C. A. Windsor, Faculty of Commerce and Administration, Griffith
University, Nathan, Queensland, 4111, Australia.
The materiality level was mid-way between the immateriality threshold limit of 5% and the materiality threshold limit of
10% (see AAS5, ASCPA, 1994).

705

C.

A. WINDSOR and N. M. ASHKANASY

view, and 7 indicated a very high likelihood of

acquiescing. 5
The scenarios were generated by computer
to ensure that they were presented to respondents in random order. Respondents were
requested to complete each of the scenarios
in sequence, without consulting colleagues.
The same instrument was subsequently tested
on a sample of 160 third-year auditing students.
In this instance, no significant effects of the
three economic variables were detected. This
suggests that responses to the scenarios by the
practising auditors were derived from the auditors experience in dealing with client management, rather than an artifact of the measure.
This finding is similar to that reported by
Farmer et al. (1987), who reported that practicing auditors independence judgments were
affected by organizational acculturation.
Belief scale. This was the just world subscale
of Collins (1974) 46-item Likert-scale version
of Rotters (1966) internal-external
control
questionnaire. The dimensional structure of
this version of Rotters scale was verified by
Ashkanasy (1985), and the just world subscale
has been separately validated by Zuckerman
and Gerbasi (1977a,b). Responses to each of
the items were based on a seven-point Likert
scale, where 1 indicated strong disagreement,
and 7 indicated strong agreement.
Defining
issues test (DID. The short (3story) version of Rests (1979) scale was used.
This is based on Kohlbergs (1969) theory of
moral reasoning development, and consists of
a number of brief stories that present moral
dilemmas in everyday life. The DIT has been
extensively validated, and was described by
McCrae (1985) as a paradigm of measurement
instruments (see Gaa, 1992). The 3-story version of Rests scale was used in preference to
the Gstory version because of the time constraints on professional auditors. Rest (1979)
cites Cronbach alpha reliability for the 3-story
DIT typically around 0.7. Respondents answer

questions concerning the importance of considering various aspects of each story using
five-point response scales, where 1 indicates
least importance,
and 5 indicates greatest
importance. Scoring of responses is based on
a formula set out by Rest (1979).
Prior to administering
the
Procedure.
research instruments, a three-stage strategy
was used to strengthen internal validity and
to overcome data collection problems. First,
preliminary interviews were conducted with
six senior audit partners (one from each of
the big six audit firms) to assess the nature of
audit conflict problems, and to gain the partners co-operation. In the second stage, a draft
case study was circulated to the audit partners
to enlist their help in developing realistic scenarios, which appropriately represent client
management power. The advice and comments provided by the senior audit partners
were used to compile the final versions of the
instrument. In the third stage, the audit partners were briefed on how to distribute and
collect the questionnaire booklets so as to minimize internal validity problems such as history
and maturation. The co-opted partners were
instructed not to participate in the experiment, nor to advise participating
auditors
about the substance of the questionnaires.
The questionnaire booklets were distributed
to experienced auditors using secretarial services provided by the participating
firms,
under supervision of the co-opted audit partners. The secretarial staff offered the booklets
to participating auditors immediately on their
return from audit assignments, and provided no
indication that the study was dealing with ethical issues. Those agreeing to participate were
asked to complete the booklets within 30 minutes, and to return them (in sealed envelopes)
to the person who gave them out. Three weeks
after distribution to the firms, the completed
instrument (still in sealed envelopes) were
delivered by the secretarial
staff to the

Use of a 7-point Likert-type formatwas justifiedin the presentstudyon the

scale in a study of perceptions of auditor independence.

of Knapp (19551, who used a -/-point

AUDITOR INDEPENDENCE

researchers. Participating auditors were guaranteed full anonymity

and confidentially.
Neither the researchers nor the senior partners
knew who participated in the study.
Following the analyses, feedback interviews
were conducted with senior audit partners.
Results of the study were also made generally
available through preliminary papers presented
at accounting association conferences.
Sample
The study sample comprised
sixty-one
respondents, consisting of experienced auditors drawn from a cross-section of large multinational chartered firms located in a single
metropolitan centre (location 1). Care was
taken in the distribution of questionnaires to
ensure that there was no dominance by a particular firm. Fifty (89%) of the auditors originally contacted
responded.
The completed
responses came from twelve senior audit partners, twenty-five senior managers/managers,
eight assistant managers/supervisors, and five
audit seniors. There were fifteen females and
thirty-five males. The respondents had a mean
age of 33 years and mean auditing experience
of 12 years. (One respondent incorrectly completed the DIT and was dropped from the
analysis.)
Results
Rests (1979) DIT measures level of moral
reasoning development using scores of Kohlbergs stages 5 and 6. This is called the mean

709

P-score; it ranges from 0 to 70, and indicates

level of moral reasoning development. The
higher the P-score, the more highly developed
is the respondents moral reasoning.
Rest (1979) recommended that the P-scores
can be used to categorize the auditors into
high, mid, and low groups, corresponding,
respectively, to Kohlbergs (1969) post-convenand preconventional
tional, conventional,
levels of moral reasoning development.* Based
on a large normative sample, Rest determined
that P-scores of 27 and 41 were the appropriate
cut-off scores to define the three groups. These
values were adopted in the present study,
where the overall mean P-score was 30.6 (s.d.
= 16.1).9 The auditors were thus divided into
low (n = 24, mean = 17.42, s.d. = 9.51), mid (n
= 11, mean = 34.42, s.d. = 3.93) and high (n =
14, mean = 53.27, s.d. = 8.73) moral reasoning
development groups.
Calculation of scores on Collins (1974) just/
unjust world dimension was done using Collins original factor structure, which included
11 items, giving a range of 11 to 77. The
mean score on this was 40.2 (s.d. = 7.02)
with Cronbach alpha = 0.73. The auditors
were divided into believers and non-believers
in a just world on the basis of the mean score.
Mean scores for the two groups were 35.41
(just world beliefs: n = 29, s.d. = 4.08) and
46.91 (unjust world beliefs: n = 21, s.d. = 4.15).
The dependent variable in the analysis was a
measure of auditors acquiescence
to the clients demand concerning materiality conflict.

6 Preliminary results of the present study were given in an unpublished paper presented at the Annual Confwence of&e
Accounting Association of Australia and New Zealand, Darwin (July 1993).
A second score, termed the M-score (for meaningless) is calculated as means of identifying unreliable respondents. Rest
(1979) recommends that respondents whose M-score is 4 or more be eliminated from the sample. In the present study,
however, no respondents were eliminated in this fashion.
s Ponemon and Gabhart (1990) used a simple median split, and therefore did not tap into the three-level definition of moral
reasoning development given by Kohlberg.
9 This is substantially lower than Rests (1979) general community norms which were all greater than 40, and is also less
than Gaas (1992) list of DIT scores obtained across a range of studies involving accountants. It is, however, similar to the
mean score of 32.6 obtained by Ponemon and Gabhart (1990), and suggests that, although on the low side, P-scores for the
present sample fitted within the mid-group limits defined by Rest (1979).

710

C. A. WINDSOR and N. M. ASHKANASY

TABLE 1. Mean and standard deviations on acquiescing scores for treatment levels of the dependent variables in the initial
studv
Treatment levels
Financial conditions
Size of audit fees
Tendering

(Good)

3.31 (1.47)
2.97 (1.64)
2.84 (1.62)

(Large)
(Yes)

2.34 (1.61)
2.68 (1.57)
2.81 (1.61)

(Poor)
(Small)
(No)

TABLE 2. Mean and standard deviations on acquiescing scores for the interaction in the initial study, showing simpleeffect
F-ratios
Financial condition
Level of moral develonment
High

Beliefs about a
iust world

Good

Poor

Just
Unjust

2.94 (1.13)
3.47 (1.64)

2.42 (2.31)
3.19 (2.42)

F(FC)a, d.f. = 1,12

F(FC X BJW)b, d.f. = 1,12
Mid (tender condition)

0.82
0.08
Just
Unjust

2.70 (1.48)

1.70 (0.45)

4.17 (1.63)

1.83 (0.68)

F(FC), d.f. = 1,9

F(FC X BJW), d.f. = 1,9
Mid (No-tender condition)

19.03
3.14

Just
Unjust

3.00 (1.58)
3.50 (1.26)

F(FC), d.f. = I,9

F(FC X BJW), d.f. = 1,9
Low

1.80 (0.45)
2.00 (0.89)
15.16***
0.18

Just
Unjust

3.67 (1.61)

2.61 (1.55)
2.11 (1.16)

3.11 (1.23)

F(FC), d.f. = 1,22

F(FC X BJW), d.f. = 1,22

1j.38
0.05

*p < 0.10, **p < 0.02, ***p < 0.01.

F(FC) = Simple effect Fratio for Financial Condition main effect.
F(FC X UJW) = Simple effect F-ratio for Financial Condition X Unjust World Belief interaction

Results of the ANOVA indicated main effects on

acquiescence
for financial condition, (F =
21.85, d.f. = 1,43, p < 0.01) and for size of
fee (F = 16.23, d.f. = 1,43, p < 0.01). There
was no effect for tendering, however (F =
0.79, d.f. = 1,43). Mean acquiescing scores for
each level of the economic variables are shown
in Table 1.
There was a 4-way interaction between audit
conflict variables of tendering and client tinan-

cial condition, belief in a just world variable

and moral reasoning development (F = 6.50,
d.f. = 2,43, p < 0.01). lo Mean scores on acquiescence for the groups involved in this interaction are given in Table 2, together with simple
effect statistics for each level of moral reasoning. The interaction between moral reasoning
score, just world beliefs, and client management power (financial condition and tender)
is illustrated in Fig. 2. The vertical axis in

I Bartlett tests showed no violation of the heterogeneity of variance assumption.

t Respondents actually completed all 46 items of the Collins locus of control (LOC) scale. Separate ANOVAs were done
using the LOC total score as the independent variable to check if the effects reported in this paper were a result of just
world beliefs, or an artifact of LOC. These analyses resulted in no LOC effects, supporting our contention that the results
stem from belief in a just/unjust world.

AUDITOR INDEPENDENCE

High moral reasoning

(Autonomous)
auditors

Low moral reasoning

(Pragmatic)
auditors

Mid modal reasoning

(Accommodating)
auditors

i - - - -

No interaction
Interaction

with tender

with tender

i
:

1
Just world
beliefs

Unlust world
beliefs

Scale = 4 + (Ap Ag). where Ap = acquiescence

score for poor financial
condition; and Ag = acquescence
score for good financial condltion

Fig. 2. Auditor resistance to client management power

(financial size condition) in the initial study.

this figure has been resealed to indicate auditor resistance

to client management power
(financial condition), calculated as 4 + (Ar As>, where A, = acquiescence score for poor
financial condition; and A, = acquiescence
score for good financial condition. The fourway interaction involving the tender condition
was present in respect of the responses of the
mid-moral reasoning group only (simple effect
F = 7.21, d.f. = 1,9,p < 0.05). Results given in
Table 2 and Fig. 2 are therefore collapsed
across the tender condition for the high and
low moral reasoning groups. These results indicate that the mid-moral reasoning group with
belief in an unjust world was the least resistant
to client management power (financial condition) in the presence of tendering.
The results of the present study provide partial support for hypothesis 1, but there were
some important departures. The predicted
effect across levels of just world beliefs was
not significant for the high moral reasoning
group. There were also no significant effects
of client financial condition, suggesting that
the high moral reasoning auditors were indifferent to the economic pressure of client management power, regardless of their beliefs (see
Table 2). There was, however, a significant
difference for this group across levels of belief

711

in a just world on acquiescing scores irrespective of client financial condition (F = 6.24, d.f.
= 1,12, p < 0.05). This result suggests that the
high moral reasoning auditors were more prepared to relinquish immediate rewards and self
interest for the long-term good when they
believed in a just world.
The results support hypothesis 2. Scores for
the low moral reasoning group showed no significant differences across levels of belief. Differences
across
financial
condition
were
significant both for believers in an unjust
world (t = 3.84, d.f. = 8, p c 0.01) and for
believers in a just world (t = 2.76, d.f. = 14, p
< 0.05). As predicted, auditors with low moral
reasoning acquiesced more to the favour of
clients when they were dealing with financially strong client management. When the client was financially weak, these two groups of
auditors were less acquiescent.
The results also support hypothesis
3.
Acquiescing responses of the mid-moral reasoning group who believed in an unjust world
showed a significant effect of financial condition (t = 4.44, d.f. = 5, p < 0.01) and for the
tender/no-tender condition (t = 2.39, d.f. = 4,p
< 0.07). As a result, this group was the least
resistant to client management power (see
Fig. 2). This effect was not apparent, however, for the mid-moral reasoning auditors
who believed in a just world (t = 1.91, d.f. =
4, ns). Overall, it is clear that this groups resistance to client management power was stronger when they believed in a just world, as
predicted.
Finally, simple effect ANOVA comparisons
across the moral reasoning groups show that
responsiveness to financial condition was not
significantly different for auditors who believed
in a just world, but that the groups were differentiated when they believed in an unjust world
(tender condition F = 6.07, d.f = 2,2O,p < 0.01;
no-tender condition F = 2.82, d.f. = 2,20, p <
0.10). From Fig. 2 it can be seen that, for just
world beliefs, the high moral reasoning group
was the most resistant, while the mid-moral
reasoning group was least resistant, especially
in the tender condition.

712

C. A. WINDSOR

and N. M. ASHKANASY

Discussion
Although there were some exceptions, the
results provided general support for the study
hypotheses. As such, the results suggest the
existence of three distinct groups of auditors,
based on their level of moral reasoning development. Kohlberg (1969, 1986) used the terms
post-conventional,
conventional, and pre-conventional to characterize
these groups, but
these terms have little intuitive meaning in
the present instance. Kohlberg (1986) also
referred to the post-conventional
style as
autonomous, and the pre-conventional style
as pragmatic. These terms have more meaning in the context of the present study, but
Kohlberg still provides no clear characterization of the mid-moral reasoning group, except
to note that members of this group perceive an
element of reciprocity in their dealing with
others. We therefore borrowed from Antle
and Nalebuff (1991)
who examined auditor
client relationships from a game theory perspective. Although their theoretical framework
was different from that used in the present
study, their results were essentially similar.
Antle and Nalebuff (1991) identified three
groups of auditors, which
they labelled
tough, accommodating,
and business as
accommodating
usual. The expression
matches the characteristics
of the mid-moral
reasoning group in the present study, and we
have therefore adopted this term also.
The autonomous auditors decisions were a
function of personal beliefs in justice, and they
were the most resistant to client managements
economic power. In contrast, the independence of the pragmatic group was affected
only by the bargaining power of client management. This supports Kohlbergs theory in
respect of the pre-conventional stage, and is
consistent
with Ponemon
and Gabharts
(1990) findings. Finally, members of the accommodating group responded to client management bargaining power when they believed
in an unjust world. This group was affected
by both client financial condition and tendering. As a result, this group provided the least
resistance to client bargaining power and the

highest acquiescence

scores overall (see Table

2).

In summary, these results suggest that Lerners (1981)

contention
that people who
believe in a just world are more prepared than
those who believe in an unjust world to sacrifice short-term for long-term rewards applies
only to autonomous auditors. Pragmatic auditors (who place immediate interests first) and
accommodating auditors (who are eclectic) on
the other hand, are influenced by powerful client management for short-term rewards.
There were limitations to the present (initial)
study, however. These include the small number of respondents, particularly in some of the
conditions, and the manner in which they were
selected. The results were obtained by using a
limited number of auditors from selected firms,
thus generalizing the results to other groups
of auditors should be treated with caution.
Finally, results were based on high-order interactions, which can be unstable for small sample
sizes (see Keppel, 1989).

VALIDATION

STUDY

To deal with some of the limitations of the

initial study and to confirm the high-order interaction, a second or validation study was instigated. The aim here was to replicate the results
of the first study, and to test specific hypotheses that auditor independence is influenced by
moral reasoning development and belief in a
just world when economic pressure is exerted
by client management.
In the validation study, therefore, we replicated the research design, method and experimental task used in the initial study. To avoid
experimental
contamination
that may be
caused by respondents completing the questionnaires a second time, auditors from a different metropolitan centre (location 2) were used
in this instance.
Sample
The offices of the big six first-tier accounting
firms in the metropolitan centre of location 2

AUDITOR INDEPENDENCE

713

TABLE 3. Mean and standard deviations on acquiescing scores for treatment levels of the dependent variables in the
validation studv
Treatment levels
Financial condition
Size of audit fees
Tendering

1
(Good)
(Large)
(Yes)

provided the participants for the validation

study. One hundred
and seven useable
responses were received from the one hundred and sixty-seven questionnaire booklets
originally distributed, a 64% response rate.
The sample comprised
primarily auditors
from management level, with seventeen partners, fifty-three senior managers/managers,
eighteen assistant managers/supervisors
and
nineteen senior auditors. There were eightysix males and twenty females (one respondent
unidentified). Respondents had a mean age of
31 years and mean auditing experience of 10
years.
The sample was divided into three groups,
with high, medium, and low moral reasoning
P-scores using the same cut-off scores as were
used in the initial study. The mean score on
moral reasoning for this sample was 37.8 (s.d.
= 17.7) closer to the mid-range for accountants
as reported by Gaa (1992) and higher than the
mean obtained for the first study. Mean scores
for the resulting groups were low: 18.16 (n =
35, sd. = 7.70) mid: 35.27 (n = 27, s.d. = 4.00)
and high: 54.57 (n = 45, s.d. = 9.98).
The sample was further divided into three
groups on the basis of just world scores. This
was done to provide additional discrimination
between believers in a just versus unjust world.
The three-way split was also recommended by
Rotter (1975) as a means of dealing with the
ambiguities associated with mid-score groups.
Thus, the larger sample in this instance allowed
for the middle group to be included. The overall mean score on just world beliefs was 41.15
(s.d. = 6.84) with Cronbach alpha = 0.74. The
group was divided into three approximately

2
3.30 (1.42)
2.72 (1.46)
2.66 (1.39)

(Poor)
(SmaR)
(No)

2.04 (1.16)
2.61 (1.45)
2.67 (1.52)

equal sized groups using cut-off scores of 39

and 43. Those scoring over 43 were categorized as having a belief in an unjust world (n =
37, mean = 45.78, s.d. = 5.75). Those scoring
less than 39 were categorized as believing in a
just world (n = 35, mean = 36.28, s.d. = 6.05).
Those between were categorized as having
intermediate beliefs (n = 35, mean = 41.11,
s.d. = 5.14).
Results
As for the initial study, the results of the
present experiment indicated significant main
effects for client financial condition, F = 88.98,
d.f. = 1,98, p < 0.01, and for size of fee (F =
5.38, d.f. = 1,98,p < 0.01). Also, as in the initial
study, there was no main effect for tender (F =
0.01, d.f. = 1,98). Mean scores on the economic
variables in the present study are given in Table
3. The results did, however, indicate an interaction between financial condition and tendering (F = 8.83, d.f. = 1,98, p < 0.01). This was
because respondents were less responsive to
tendering when the client was in good financial condition (mean difference score = 1.16)
than when the client was in poor financial condition (mean difference score = 1.36).
In relation to measurements
of personal
belief, results of the validation study supported
the initial study in that a high-order interaction
was found between client financial condition,
belief in a just world and moral reasoning
development
(P = 3.37, d.f. = 4,98, p <
0.01).12 Although the tender variable was not
included in the interaction in this instance, this
result nonetheless contirms the hypothesis that
auditor independence is influenced by personal

* For consistency with study 1, the analysis was repeated with two just world groups instead of three. The two-group
analysis confirmed the existence of the three-way interaction (F = 2.64, d.f. = 2,101, p < 0.10).

C. A. WINDSOR and N. M. ASHICANASY

714

ple effect statistics for each level of moral

reasoning. The interaction is also illustrated in
Fig. 3. l3 (As was the case for Fig. 2, this figure
shows resealed auditor resistance to client
financial condition.)
The results shown in Table 4 support
hypothesis 1 in respect of the autonomous
auditor group. As expected, auditors with just
world beliefs withstood client management
bargaining power as represented by financial
condition (t = 0.55, d.f. = 14, ns). When these
auditors believed in an unjust world, however,
they resisted less (t = 3.844, d.f. = 10,~ < 0.01).
Further, the autonomous group with just world
beliefs resisted client management pressure
more than any of the other groups in the present study (see Fig. 3).

Just world
beliefs

Unjust world
beliefs

Scale = 4 + (Ap Ag), where Ap = acquiescence

score for poor financial
condition; and Ag = acquiescence
score for good financial condition

Fig. 3. Auditor resistance to client management power

(financial size condition) in the validation study.

TABLE 4. Mean and standard deviations on acquiescing scores for the interaction in the validation study, showing simpleeffect F-ratios
Level of moral development
High

Financial condition

Beliefs about a just

world

Good

Poor

Just
Mid
Unjust

2.73 (1.04)
3.13 (1.44)
3.45 (1.58)

2.55 (1.57)
1.83 (1.00)
2.05 (0.83)
25.84*
4.37

F(FC)=, d.f. = 1,42

F(FC X BJW$, d.f. = 2,42
Mid

Just
Mid
Unjust

3.82 (1.52)
2.69 (1.64)
4.34 (1.18)
27.60
4.75

F(K), d.f. = 1,24

F(FC X BJW)b, d.f. = 2,24
Low

2.14 (0.93)
2.28 (1.81)
1.89 (0.78)

Just
Mid
LJnjust

F(FC)=, d.f. = 1,32

F(FC X Bmb, d.f. = 2,32

2.77 (1.44)
3.79 (1.72)
3.53 (1.05)

1.38 (0.53)
2.42 (0.65)
2.09 (1.16)
32.67*
0.01

*p < 0.05, **p < 0.01.

=F(FC) = Simple effect F-ratio for Financial Condition main effect.
F(FC X UJW) = Simple effect F-ratio for Financial Condition X Unjust World Belief interaction.

beliefs when cognitions are subject to economic power. Mean scores on acquiescence
for the groups involved in this three-way interaction are given in Table 4, together with sim-

The low moral reasoning (pragmatic) group

showed significant effects both for just world
believers (t = 4.53, d.f. = 12,p < 0.01) and for
unjust world believers (t = 4.045, d.f. = 15, p <

I3 For clarity and consistency with Figs 1 and 2, means for the middle just world belief group have been omitted from Fig.
3.

AUDITOR

INDEPENDENCE

0.01). This confirms the support for hypothesis

2 found in the first study, that the pragmatic
group of auditors decisions were independent
of beliefs in a just world.
Results of the present study in respect of
accommodating
auditors also provided clear
support for hypothesis 3. The financial condition effect for the accommodating group with
just world beliefs was significant (t = 3.34, d.f.
= 6, p c 0.05) but much more so for the group
with unjust world beliefs (t = 6.98, d.f. = 10, p
c 0.01). Thus, although both groups responded
to the financial condition, these results support
the finding of the first study that the accommodating auditors were affected by both client
financial condition and belief in a just world.
In fact, as in the initial study, the accommodating group with a belief in an unjust world was
again the most influenced by client financial
condition, and provided the highest acquiescence scores overall (see Table 4).
Simple effect ANOVA comparisons across
the moral reasoning groups showed that
responsiveness
to financial condition significantly differentiated the groups, both when
they believed in a just world (F = 4.90, d.f. =
2,32, p < O.Ol), and when they believed in an
unjust world (F = 2.47, d.f. = 2,35, p < 0.10).
For believers in a just world, the autonomous
auditors were significantly more resistant to
financial condition than the others. For believers in an unjust world, however, the accommodating auditors were significantly less resistant
to the financial condition of the client than the
others.
Finally, results of the validation also revealed
an interaction between just world beliefs and
client fees (F = 5.61, d.f. = 2,9&p < 0.01). This
was because auditors who believed in an unjust
world were more influenced by client fees
(difference
score mean = 0.66) than those
who believed that the world is just (difference
score mean = -0.06).*
This effect appears to
reflect a direct bias based on personal beliefs.
.

I4 A similar effect approached,

but did not reach,

significance

715

GENERAL DISCUSSION
The two experiments reported in this paper
have supported the notion that auditor independence, as a state of mind, is part of a complex decision-making
process.
When the
auditor is confronted with economically strong
client management during an audit conflict,
ambiguous and complicated situational variables pressure the auditors independent decision-making.
The resulting
decisions
are
inlluenced by an interaction between moral
reasoning and personal beliefs about justice.
Personal beliefs are embedded in the psyche,
so that objectivity may be affected when personal beliefs become part of the decision-making process. As such the empirical results of
our research provide strong support for the
interactionist approaches proposed by Ashkanasy (1989) and Trevino (1986).
The results of the two studies highlight the
role played by the personal characteristics and
beliefs of auditors. The autonomous group with
just world beliefs tended to resist client management power. When members of this group,
however, believed in an unjust world, they
were prone to take account of client management power, although less so than the other
groups. The pragmatic group was not inlluenced by personal beliefs,
and generally
responded to client management bargaining
power, apparently for reasons of personal
self-interest. Finally, the group which was
most reactive to client management bargaining
power was the accommodating
group with
unjust world beliefs. It appears that, for auditors in this category, personal beliefs combine
with economic considerations to increase any
tendency to acquiesce to the wishes of client
management. In effect, this group appears to
have had neither the philosophical fortitude
of the autonomous group, nor the practical
self-interest of the pragmatic group necessary
to withstand client management power.
The present research involved a two-study
strategy. This enabled replication of interactive
in the initial study (F = 3.73, d.f. = 1,43, ns).

716

C. A. WINDSOR

and

but differences
between
results
results,
obtained in the two studies also provide
further insight into the workings of the model
proposed in this paper. This is especially the
case in respect of the three repeated-measure
economic variables. Financial condition of the
client was involved in high-order interactions
with moral reasoning development and just
world beliefs in both studies; the client fee
variable appeared as a main effect in the initial
study, but was biased by just world beliefs in
the validation study; and tendering appeared as
a high-order interaction in the first study, and
as a two-way interaction with financial condition in the validation. It appears that the differentiating characteristic
of these cues is the
extent to which each operated as an explicit
or implicit variable. Based on Brewers (1988)
and Feldmans (1981) models of impression
formation, it appears reasonable to conclude
that implicit variables are cognitively processed, and therefore are affected by moral
reasoning, while explicit variables are treated
in an impressionistic fashion. In this respect,
explicit variables are subject only to direct
bias effects. Thus, client fees are an explicit
part of the client management-auditor relationship (Knapp, 1987) and therefore were not
affected by moral reasoning development,
resulting in main effects and low-order interactions with personal beliefs.
In contrast to client fees, financial condition
of the client is an implicit variable in the auditor-client management relationship. As such, it
is subject to cognitive processing, and operates
at higher levels of the model, resulting in highorder interactions with personal variables. Tendering was more problematic because different
results were obtained in the two studies. Follow-up interviews with the participating firms,
however, revealed that the tendering process
was an unfamiliar concept for the sample from
location 1, but was an accepted practice in
location 2 (where the validation was carried
out). Thus, we argue that tendering was an
implicit variable in the first study, producing
a high-order interaction, but acted as an explicit variable in the validation study, resulting

N. M. ASHKANASY

only in a low-order interaction with financial

condition. This suggests that it may be appropriate to extend the model by including an
implicit-explicit
dimension. Although speculative at this stage, this conclusion indicates that
further research along these lines may be
fruitful.
Results of both of the studies reported here,
however, are subject to three limitations. The
first of these is the research methodology relies
on auditors responses to hypothetical scenarios which varied in economic situational variables
representing
client
management
bargaining power. Given that the respondents
in both studies were practicising
auditors
expected to meet high professional and ethical
standards (in the present instance: ASCPA &
ICAA, 1994) it would be surprising if they
were to indicate high likelihood of acquiescence. This is reflected in the mean scores
shown in Tables 2 and 4 which, with two
exceptions (mid-moral reasoning group with
unjust world beliefs in both studies), are all
below the midpoint on the 1-7 scales used.
In reality, auditors have been successfully
sued for malpractice (Godse.ll, 1993) and are
currently facing multi-billion dollar law suits
(see AICPA, 1993; Sykes, 1994). This suggests
that the results of this research may underestimate the real extent of auditor acquiescence in
practice. Godsell (1993) refers to this as the
expectation gap . . the divergence in expectations between auditors and users of the audit
function, in respect of the objectives of the
independent auditor (p. 1). Nonetheless, the
audit conflict situation was constructed with
the active participation and close consultation
of the senior audit partners, so that it constituted a realistic contlict between client manand the
agement
auditor.
The
second
limitation of the present study is that it was
based on a repeated-measures
design, and
therefore subject to problems of demand characteristics (see Knapp, 1987). Results obtained
using a sample of audit students, however, indicated that the instrument was free of inherent
bias. Further, the essential findings of the present study were based on the between-groups

AUDITOR

INDEPENDENCE

design, involving belief in a just world and

moral reasoning development. The third limitation concerns the construct validity of the psychological measures used in this research, and
the extent to which they reflect respondents
actual cognitions and beliefs (see Rest, 1986).
Use of Rests (1979) DIT P-Score and Collins
(1974) belief in a just/unjust world scale, however, is justified in the present research on the
basis that the scales are well validated in the
literature and provide theoretically interpretable results. Nevertheless, the results of the two
studies reported here need to be validated in
field studies of auditors behaviour in actual
conflict situations.
The implications of the present research are
that auditor independence behaviour is complex, and involves an interaction between personal values, cognitions and the situation.
Hence, it would be difficult to find one simple
solution, such as giving psychological
tests
when recruiting auditors. Focusing on one
dimension is not sufficient to improve the ethical performance of auditors. Even the autonomous auditors
in the present
research
acquiesced to client management power, especially when they believed in an unjust world.
On the other hand, the pragmatic auditors
were not as acquiescent as the accommodating
auditors with unjust world beliefs.
Furthermore, the results of this research
have implications for organizational integrity
which go beyond a focus on behaviour of individual auditors (Gushing, 1990). The relationship between moral reasoning development
and beliefs in justice with organizational culture has yet to be explored fully, although personal beliefs are inculcated and imbued from

717

the individuals social and cultural environment (Lerner, 1980). Thus, underlying values
and beliefs of an organizations culture may
influence the ethical behaviour of individual
members (Schein, 1985). If integrity is at the
cultural core of an organization, the organizations culture may affect not only individual
beliefs but also the overall quality and success
of organizational performance. Hence, management of audit firms may be able to influence
auditors personal belief systems by engendering more appropriate cultural values for dealing
with ethical dilemmas (see Brief et al., 1991).
This relationship between organizational and
individual integrity
clearly
needs
to be
addressed in further research.
In conclusion, the results of the studies
described in this paper imply that the issue of
auditor independence
cannot be explained
with simple prescriptive rules, or by relying
upon audit standards. ResuIts further suggest
that auditor independence
cannot be adequately addressed in terms of economic considerations or psychological
factors taken in
isolation. Auditors are people, and are therefore subject to the full range and complexity
of economic, cognitive, and emotional factors
which influence
the way people behave
(Etzioni, 1988). The present research has
demonstrated that our understanding of auditors behaviour can be improved using psychologically based representations such as those
developed by Ashkanasy (1989) and Trevino
(1986). More research, however, is needed
now to determine how the factors affecting
auditor independence fit into the overall picture of organizational culture and performance.

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