Are Audit-Related Ethical Decisions Dependent upon Mood?

Author(s): Mary B. Curtis

Source: Journal of Business Ethics, Vol. 68, No. 2 (Oct., 2006), pp. 191-209
Published by: Springer
Stable URL: http://www.jstor.org/stable/25123907
Accessed: 27-09-2017 04:09 UTC

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 Journal of Business Ethics (2006) 68: 191-209 ? Springer 2006
DOI 10.1007A10551-006-9066-9
Are Audit-related Ethical Decisions
Dependent upon Mood?
ABSTPJVCT. This study explores the impact of mood
on individuals' ethical decision-making processes through
the Graham [Graham, J. W.: 1986, Research in Organiza
tional Behavior 8, 1-52] model of Principled Organiza
tional Dissent. In particular, the research addresses how an
individual's mood influences his or her willingness to
report the unethical actions of a colleague. Participants'
experienced an affectively charged, unrelated event and
were then asked to make a decision regarding whistle
blowing intentions in a public accounting context. As
expected, negative mood was associated with lower
intentions to report the unethical actions of others to a
superior within the organization. The Graham model,
which proposes that reporting intentions are impacted by
the three determinants of seriousness, personal responsi
bility and cost, was employed to more clearly understand
the nature of the affect-reporting intention relationship.
The role of affect was explained by demonstrating that
two determinants mediate the relationship between mood
and whistle-blowing intentions. Specifically, as serious
ness and responsibility have a positive impact on reporting
intentions, the reduction of these perceptions by negative
mood reduces the intent to report. The negative impact
of personal cost on reporting intentions was significant,
although not as a mediator of mood.
KEY WORDS: affect, mood, whistle-blowing
Whitecotton (2005) demonstrate that the value of
Introduction
Today's work environment tends to be stressful and
fast paced, and is therefore highly conducive to the
creation of different mood states. For example, events
Mary Curtis is an Associate Professor of Auditing and Accounting
Information Systems in the Department of Accounting at the
University of North Texas. Her research interests include
fudgment and Decision-making in accounting and issues related
to Information Systems Auditing.
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Mary B. Curtis
such as the requirement to work long hours, being
corrected by a superior, receiving a raise or a positive
performance evaluation have the ability to create
different mood states (Chung et al., 2005). A growing
body of research (Forgas, 1995) suggests that unre
lated, often trivial events can influence decisions of all
kinds through their impact on an individual's tran
sient affective state. Our society, and the accounting
profession more than most, relies on its members to
act ethically. Since ethical failures can have a devas
tating impact, as evidenced by the many recent cor
porate scandals, it is critical to understand the extent
to which ethical decisions can be swayed by events
which have no direct bearing on the decision at hand.
This research assesses the impact of mood, or affect,
on the ethical decision-making process, specifically
on the decision to blow the whistle on a colleague
who has been observed in an inappropriate act.
Based on theory that has evolved through several
prior studies (Graham, 1986; Schultz et al., 1993),
Kaplan and Whitecotton (2001) demonstrated that
an individual's resolution of an ethical dilemma
varies depending on the perceptions of the current
dilemma context, including seriousness of the
problem, cost to the individual, and personal
responsibility for reporting the incident. Curtis and
these core determinants can change in reaction to
strong, directly related events, such as the financial
reporting scandals of 2002 and 2003. The objective
of the current study is to further investigate the
influence of external events on audit-related ethical
decisions by exploring the impact of affect created by
trivial, unrelated occurrences.
Results suggest that affect does influence ethical
decisions. Additionally, the mediation of this relation
ship by perceptions of seriousness and responsib?ity was
supported, but cost was not supported as a mediator.
 192 Mary B. Curtis
The next section will present prior literature on
the impact of mood on judgment and on the
Graham (1986) model. Hypotheses related to model
antecedents are proposed and tested.
Theory
Affect in ethical judgments
Research regarding affect suggests that human
decisions are often impacted by transitory, or tem
porary, mental states (Stone and Kadous, 1997).
Clore et al. (1994, 369) propose that individuals'
affective states "may influence each and every step of
the information processing sequence, from selective
attention to information, to the encoding of infor
mation and its subsequent retrieval from memory."
Indeed, Forgas (1995) proposes that affect is so
pervasive an influence in decision-making that
"cold" cognition may be the exception rather than
the rule. The interesting, yet troubling, aspect of
mood is that it is often wholly unrelated to the
environmental stimulus existing within the current
situation, and, most importantly, may change within
the same individual from one point in time to an
other (Isen, 1993).
A significant body of research regarding the
relationship between mood and performance sug
gests that mood may bias valence judgment, with
good moods causing a positive view of the context
and one's place in it, while negative mood causes a
more negative view (Forgas and George, 2001;
Kraus, 1995; Ziva, 1999). Consistent with the
cognitive-affective model, social judgment theory
proposes that positive mood is related to more
positive judgments of one's self as well as others
(Clore et al., 1994) and that more negative mood
leads to more negative evaluations and resulting
actions, particularly in situations where mood was
not salient to the subject (Bower, 1981; Forgas,
1995). The classic example of this behavior was
reported by Isen et al. (1978), in which several
individuals walking through a shopping mall were
given small gifts worth 29 cents. Experimenters
standing 50 yards away asked shoppers to evaluate
cars and TV sets. Participants who had received the
small gifts rated the products more highly than
participants who had received no gift. Many sub
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sequent studies have demonstrated this same effect,
for both positive and negative mood. For example,
Kadous (2001) found that negative affect created
during an auditor negligence trial was related to
jurors' judgments against auditors. Greater levels of
negative affect resulted in more negative evaluations
of the auditors, and thus greater penalties were as
signed to those auditors.
Conflicting findings in regard to the influence of
affect have led to more refined theories to explain
mood-consistent and mood-inconsistent behavior.
For example, Forgas (1992, 2001) proposes an Affect
Infusion Model (AIM) which asserts that affect has
the strongest impact on decisions when cognitive
processing is substantive (when the judge is moti
vated to be accurate and the target is unusual or
complex) or heuristic (use of shortcuts or simplifi
cations when the judge has no personal involvement
in the issue and has little motivation to be accurate),
and the least when processing is direct (routine
retrieval and use of pre-existing, crystallized assess
ments or evaluations) or motivated (when the judge
has a strong pre-existing objective and employs a
selective, guided search in support of that goal).
Going further, Forgas proposes that substantive
processing (implicitly assumed by most contempo
rary models of social cognition) should result in
mood-consistent judgments, such as those proposed
by social judgment theory (Isen, 1984), and heuristic
processing may result in mood-inconsistent judg
ments, precipitated by mood-as-information theory
(Wegener et al., 1995). Thus, in applied affect re
search, such as this study, one must carefully identify
the context anticipated to guide the "real life"
decisions being modeled by that research and control
the experimental setting to most accurately depict
those being modeled.
In regard to ethical decision making, Gaudine and
Thorne (2001) proposed that positive affect results in
increased identification of ethical situations,
improves an individual's propensity to formulate
prescriptive judgments consistent with their level of
moral development, and increases their tendency to
select ethical choices consistent with their prescrip
tive judgments. The George and Jones (2001) values,
attitudes and moods (VAM) model suggests that
positive mood should facilitate behaviors such as
helping co-workers, protecting the organization,
making constructive suggestions, engaging in self
 Are Audit-related Ethical Decisions Dependent upon Mood? 193
development activities, and spreading goodwill.
Similarly, negative affect creates pessimism and
negative perceptions, extending to all around, not
only to the wrongdoer but also to the organization
(George and Jones, 2001). In regard to the deci
sion of whether to employ intra-organizational
whistle-blowing, negative feelings toward one's
employer should decrease one's allegiance to the
organization (Forgas and George, 2001), as well as
the perceived likelihood that the organization would
take appropriate corrective action. These attitudes
should, in turn, reduce one's interest in attempting
to protect that entity, particularly by committing an
act that may have personal ramifications. Gaudine
and Thorne (2001) propose that while positive affect
results in more "ideal" prescriptive judgments,
negative affect may cause an individual to focus
primarily on themselves, emphasizing the personal
impact of reporting over the organizational impact
of not reporting. Indeed, Miceli et al.'s (1991) study
supports the notion that those with negative atti
tudes toward themselves and the organization were
less likely to report observed unethical acts. This
discussion of the impact of affect on decision-making
supports the assertion that, when decisions are
important, and the decision maker is motivated to be
accurate and has no pre-existing goal to guide his or
her actions, the individual will engage in substantive
processing and experience mood-congruent affect
infusion. I assert that the decision of whether to
report one's manager to his or her superiors is just
such a decision context. Therefore, it is hypothe
sized that more negative mood will reduce the
individual's inclination to report the unethical acts of
others within their organizations:
H-l: More negative mood is associated with re
duced intentions to report.
Ethical decision-making process
To understand the mechanisms through which
mood impacts reporting of unethical acts, we must
understand the factors, beyond mood, which influ
ence the decision process. Graham (1986) proposed
a model for principled organizational dissent that
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encompasses most of the components discussed in
the wide-ranging literature on whistle-blowing.
The model begins when an individual becomes
aware of an issue of principle. Three factors are
theorized to influence the decision of whether to
report this issue: the perceived seriousness of the
issue (seriousness), the individual's personal respon
sibility for responding (responsibility), and the per
ceived feasibility of response (cost).
According to Graham's model and the theories
upon which it is based, seriousness is a necessary, but
not sufficient, component of an individual's judg
ment process. Before an individual would consider
responding to an issue of principle, the issue must be
serious enough to warrant consideration of response.
Seriousness is an evaluation of the issue, influenced
by the characteristics of the situation and others in
volved, including such concerns as likelihood of
harm to others, significance or magnitude of po
tential harm, certainty of negative outcomes and
frequency of such wrongdoing. Interestingly, fre
quency can influence perceptions of seriousness in
two conflicting ways. First, if a problem occurs more
often, it has a greater cumulative chance of harm
than a single instance of the event, and must there
fore be more serious. Alternatively, especially under
conditions of situational ambiguity, a problem that
occurs frequently may be perceived as less serious,
due to the fact that no one else appears to have
reacted to what they must surely have observed.
"The number of others presumed to be knowl
edgeable about the issue ... is likely to reduce per
ceived issue seriousness due to the effects of
pluralistic ignorance" (Graham, 1986, p. 39). If an
individual notes that a chronic problem results in no
general feeling of concern, this may lead him or her
to conclude that the problem must be trivial, and
thus hesitate to raise the issue for fear of creating
unnecessary alarm.
Responsibility to report wrongdoing is often
influenced by feelings of social responsibility to one's
colleagues and employer, attitudes toward one's
profession, the number of other observers and per
sonal ethical values. Responsibility can be explicit,
defined in a person's job description or considered a
part of their role responsibilities, or it can be im
plicit, arising from the individual's own personal
sense of social responsibility or moral obligation.
Additionally, diffusion of responsibility, when there
 194 Mary B. Curtis
are numerous individuals who have observed but
not responded to an issue, occurs in a similar manner
as diffusion of seriousness, reducing personal
responsibility to protect the organization by report
ing the wrongdoing by one of its members.
Perceived cost of responding to a principled issue is
increased by consideration of the nature of the pos
sible organizational response and opportunity costs of
dissent. Potential reprisals and opportunity costs in
clude loss of peer approval, job transfers, low per
formance ratings, denial of pay increases, and in more
extreme cases, termination of employment. Per
ceived cost may be decreased by belief in the exis
tence of support and protection for dissidents, such as
the belief that professionalism demands reporting
behavior. Cost may also be increased by lack of self
esteem, reducing one's confidence that his or her
actions could stimulate organizational change.
Building on Graham's components of seriousness,
personal responsibility, and cost of reporting, Schultz
et al. (1993) proposed a model for the reporting of
questionable acts in accounting, entitled the Model of
Discretionary Reporting. The model predicts that
seriousness and personal responsibility are positively
related to reporting tendencies, and perceptions of
cost reduce reporting tendencies. As predicted in
Graham's model, Schultz et al.'s (1993) results show
that auditors are more likely to report questionable
acts when they feel the act is relatively serious, as their
sense of personal responsibility for reporting increase,
and as their beliefs about the personal cost of reporting
decreased. Kaplan and Whitecotton (2001) tested and
extended Schultz et al. (1993), with similar results.
H-2: Greater individual intentions to report ques
tionable behavior by another are related to
a greater perceived seriousness
b greater perceived personal responsibility
c lower perceived personal cost
Role of affect in the Graham model
If the Graham (1986) model has significant support
in the literature, what role might mood play in this
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decision process? While Graham's model does not
specifically identify affect as a determinant of
reporting intentions, her discussion of the model
does accept that perceptions of the decision-making
context may be based on subjective assessments as
well as objective evidence. Thus, it is possible that
mood can impact individuals' perceptions of an
ethics-oriented issue through mood-congruent
judgments (Fieldler, 2001) of the context within
which an unethical action has occurred.
When social judgment theory is considered within
the context of Graham's (1986) model of reporting
intentions, mood should impact ethical decisions
through its influence on perceptions of seriousness,
responsibility, and cost. It must be determined,
however, in what direction "mood congruence"
moves these perceptions. For example, if negative
mood makes things look worse, should not it make an
unethical act appear more serious? However, it must
be considered that negative mood makes everything
look worse, such that this one event may not stand out
as serious in light of the perception that serious events
occur all around. Since negative mood causes one to
think less generously of others and to feel more pes
simistic about events, in general, this may lead to the
attitude that unethical activities are commonplace,
reducing the seriousness of this particular act. With
negative affect, mood congruence should result in a
less optimistic view of the world as a whole, while
positive affect would result in optimism. Such opti
mism would make this event appear unique ? one bad
apple in an otherwise good organization, while neg
ativism could lead one to see this as a general trend
within their organization, possibly resulting in one's
adopting the attitude of "Well, what did you expect?"
Thus, negative mood congruence may make the
occurrence of this specific event appear not unusual
and therefore, less serious, in the larger picture.
Additionally, the increased focus on oneself arising
from negative affect (Gaudine and Thorne, 2001)
may cause one to perceive that an event is important
only if it impacts oneself, personally, regardless of
frequency. Similarly, if negative attitude leads one to
think less of an organization and how they have been
treated by that organization, then one may feel that
any potential harm to the organization from the
unreported misdeed would be unimportant. All of
these factors should raise the threshold for percep
tions of seriousness. Therefore, it is theorized that the
 Are Audit-related Ethical Decisions Dependent upon Mood? 195

more negative a person's affect, the less serious an
unethical event will be perceived.
Graham (1986) asserts that responsibility for
reporting unethical conduct is driven by feelings
toward one's profession, organization and colleagues.
Reporting unethical acts has the potential of
protecting one's organization and the "innocent"
employees who could be impacted by harm to the
organization, but could harm the individual who is to
be reported. If negative mood taints one's attitude
toward their profession or organization, with no
corresponding increase in affection for their col
leagues who could be harmed by the misdeed, an
individual in a negative mood should have a dimin
ished sense of social responsibility and therefore be
less willing to assume responsibility for reporting.
Finally, the popular press (cf. Bandler and Mare
mont, 2001) reports that whistle-blowers are often
punished by their organizations and peers for their
actions, increasing the personal cost of reporting.
Since social judgment theory suggests that individual
assessments of situations and of those around them are
flavored by mood, it can be expected that individuals
in more negative moods would assess the likelihood
of reprisals and opportunity costs of dissent as greater.
For example, less confidence in the ethical nature of
the organization may increase fears that it may seek to
hide the problem or even that the organization may
condone the unethical activities, which would mean
silencing the whistle-blower. The same negative
attitude toward one's organization could increase the
fear that it would not honor promised confidentiality
of reports, which could result in reprisals from those
involved or even from innocent parties who disap
prove of whistle-blowing in any form. Finally, the
reduced self-confidence brought on by negative affect
may lessen one's confidence that their actions would
be effective in spurring action by the organization.
Thus, it is theorized that mood, rather than directly
impacting the ethical judgments of individuals, instead
serves to modify the perceptions of the three model
variables in such a way that more negative mood will
reduce perceptions of seriousness and responsibility,
and increase perceptions of personal cost (Figure 1).
These modifications should, in turn, reduce the intent
to report unethical acts committed by others.
H-3: Seriousness, responsibility and cost mediate
the impact of mood on ethical decisions.
Method
Participants
Participants were senior accounting students at a
mid-western university, enrolled in an undergradu
ate auditing course that includes an emphasis on
professional responsibilities. The same instructor

Mediation model of the

relationship between Affect
and Whistle-blowing
Intentions:

Perceived seriousness of the act

Personal responsibility for reporting

Personal cost of reporting

Negative
Affect Reporting
Intentions
Pathc

Figure 1. Revised reporting model. Adapted from Graham (1986), Schultz et al. (1993) and Kaplan and Whitecotton
(2001). When tested, all paths were significant, with the exception of Affect-Personal Cost.

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 196 Mary B. Curtis
taught all sections of the course and employed sim
ilar exams, class materials and classroom exercises
across sections. A total of 225 individuals participated
in the exercise. Five participants failed to respond to
all of the task information and were deleted from the
analysis, resulting in a usable sample of 220. The
sample is comprised of 142 females and 78 males. All
sections had similar demographic characteristics,
with an average age of 27, very little audit experi
ence, an average of 2 years of professional work
experience and 3 years in non-professional jobs.
Slightly less than two-thirds reported that they had
observed unethical acts in the workplace or else
where, similar across genders.
Table I presents means, ranges and standard
deviations for demographic variables, as well as cor
relations between these characteristics and the
dependent and independent variables. There are
significant correlations between (1) professional
experience and responsibility, (2) age and reporting
intentions, and (3) age and perceived cost. While
interesting, these associations do not appear to
threaten the analyses or results reported here. Also
note that gender is significantly related to reporting
intentions, seriousness and responsibility. Since
gender is unevenly distributed in this study (as in
most accounting classrooms today), sensitivity anal
ysis was conducted to rule out gender as an alternate
explanation for the results reported here (see note 8).
Task
The research was conducted in senior-level auditing
classes, immediately after reviewing an exam. At the
end of the review, students were asked for feedback
on the exam (affect elicitation ? Exhibit 1). They
returned their exams and the feedback questionnaire,
and were told that the class would "take a break" by
working an exercise. Students were handed a packet,
containing the instrument. Participants were assured
of the confidentially of their responses in the fol
lowing way: a cover page explained the procedures
for confidentiality, including the fact that their sig
nature sheet (used to assign participation credit for
the exercise ? a daily activity in the class) would be
removed from the exercise answers by the class
grader and the data would then be entered into the
computer by the grader without recording the stu
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dent name. The instructor would not see individual
responses prior to this time.
Research instrument
The research packet was composed of a judgment case
and demographics survey. The judgment case,
developed by Kaplan and Whitecotton (2001) and
presented in Exhibit 2, described an audit environ
ment in which the participant's audit manager had
been offered employment by the client, had not
determined whether to accept or reject the offer, and
had not removed himself from the engagement.
Two measures were used for the construct
"Reporting Intentions" (consistent with Kaplan and
Whitecotton, 2001): first, participants were asked to
indicate the likelihood that they would report the
manager's actions to the engagement partner (Kaplan,
1995). Since prior research in ethics violations sug
gests that participants might be reluctant to answer a
"first person" whistle-blowing question honestly or
could be subject to social desirability bias (Pauls and
Stemmler, 2003), participants were also asked to
indicate the likelihood that other auditors would re
port this incident (Schultz et al., 1993). Additional
questions elicited participant perceptions regarding
the Seriousness of the manager's misconduct, Cost to
themselves in reporting this incident to the engage
ment partner, and their Responsibility for reporting
the employment offer to the engagement partner
(Exhibit 2). Finally, the demographics instrument
identified participant age, gender and other back
ground information.
Mood manipulation
One interesting challenge in research related to
mood involves how the construct is manipulated.
Manipulations may be task-related (Stone and
Kadous, 1997) or general in nature (Forgas, 1995).
Manipulations may be made during the experiment,
prior to the experiment, or mood may be merely
measured, absent overt manipulation by researchers.
Instances in which a person's mood, created outside
the current target, infuses judgments of the current,
unrelated task have been of great interest in the
psychology literature and are employed in this
research. Classic studies have revealed mood
 0.016

-0.039 -0.039 -0.078 -0.075

0.032
-0.101 -0.025 -0.069 -0.128 -0.023
-0.019 -0.087
Cost Comp
0.006 -0.168*
-0.066

-0.039 -0.035 -0.036

Seriousness Responsibility Personal Affect AffectExam

0.157* 0.024 0.113
-0.086

-0.039 -0.165* -0.077

Correlations

0.016 0.048 0.026

0.089 0.095 -0.231* -0.051

Demographics and Pearson product correlation coefficients with variables

AffectExam - Was your exam score

0.076better or worse than
0.146* expected; AffectComp - Was your exam score better or worse t
0.019 0.014
0.107

TABLE I

Reporting Intentions Personal Other's Reporting -0.026 -0.194* Other's Reporting Intentions - Indicate the likelihood that other audit seniors would inform the engagement audit partner (1 = unlikely, 10 = very likely).

Responsibility - Please as es your personal responsibility for informing the audit engagement partner (1 = not responsible, 7 = very responsible).

Personal Reporting Intentions - How likely is it that you would inform the engagement audit partner (1 = unlikely, 7 = very likely).

Intentions 0.094
0.061 0.064 0.058 0.030
-0.156* -0.096 Cost ? Please assess the personal costs to you of informing the audit engagement partner (1 = very low, 7 = very high).

Rangein months 0-252 0-384

0-12
19-54
Serious - Please assess the seriousness of Michael Jenkin's act (1 = not serious, 7 = very serious).

Mean (SD)
in months
These variables areNothe
28.5 (46.4)
= 55%, participant's response to the following questions:
37.0 (45.9)
Female = 65%,
No = 43%,

27 (7.01)
0.16 (1.23)
male = 35%

yes = 45% Yes = 57%

aGender is coded as: Male = 1, female = 0.

Detected questionable

Detected questionableacts by others

other professional

public accounting acts by co-workers

Demographic 5 = worse).

Experience: Experience: Experience:

non-professional
Gendera
variable Age

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 198 Mary B. Curtis

EXHIBIT 1
Affect measure

Feedback on the Exam

Complete, and include with your exam when you return it:
1. Indicate, on the scale below: Was your exam score (AFTEXAM)
|-1-1-1-1

Better As Worse
than expected expected than expected

2. Indicate, on the scale below: Based on your grades in other accounting classes, was your score on this test (AFTCOMP)
| | | | |
Better
than average than average

Note: These variables were coded such that a larger num

EXHIBIT 2
Case, page 1

General instructions
This is a problem to be used for group discussion later. WORK ALONE, FOR NOW. Read the assigned problem and
answer the questions. As with all ethical dilemmas, there is no correct answer - respond as you believe is correct, working
alone on your solution, but do not be concerned that you will be evaluated on your solution. To the extent possible,
respond to the case as you would if you were faced with this situation in real life.
Modern appliances case
You are the senior assigned to the audit of Modern Appliances. This is the first year you have been assigned to this audit
engagement. The manager on the audit is Michael Jenkins. Michael has been on the Modern Appliances audit for the
three previous years and is well liked by the client. He has extensive industry experience. Michael possesses high
professional integrity. When confronted with a questionable reporting issue he evaluates the situation objectively. He
tends to be neither overly accommodating towards client's wishes nor overly restrictive.
Modern Appliances is a publicly held company, that manufactures a complete line of commercial and residential water
heaters. The Company is one of many companies in the water heater industry and is of medium size in relation to its
competitors. The Company has been in operation for over 30 years. Your firm has conducted the audit for the past
4 years during which an adequate working relationship with Modern Appliances has been established. Modern Appliances
has a May 31 year-end.
Bill Kaiman, who has been with Modern Appliances 4 years, is the CEO of the Company. He has considerable industry
experience. He has not been, however, supportive of efforts to strengthen the internal control structure. Operating
budgets for the internal audit department and the accounting department are marginally adequate; some of the profes
sionals in these departments, while possessing adequate qualifications, often exhibit laxity in performing duties. The
Company uses aggressive accounting policies and defends their use vigorously. During the course of previous audits
several material errors were discovered and, after lengthy discussions, adjustments were booked by the Company.
In terms of economic performance, Modern has had an average annual growth rate in sales of about 6% over the past
decade. Bond covenants are not in threat of violation.

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 Are Audit-related Ethical Decisions Dependent upon Mood? 199

Exhibit 2
(Continued)

The questionable act

The current controller was leaving soon, having accepted a position to be chief executive of a small appliance manu
facturer. While making inquiries with the assistant controller you were surprised to learn that the audit manager, Michael
Jenkins, has been offered the position of controller for Modern Appliances. You are also told that he is still deciding
whether to accept the position. Michael Jenkins has continued in his role as audit manager for Modern Appliances.
The concern is that being offered employment by the client may be viewed as impairing independence. In fact, an Ethics
Ruling on this issue has stated that "the individual must remove himself or herself from the engagement until the
employment offer is rejected or employment is no longer being sought, in order to prevent the appearance that integrity
or objectivity has not been impaired."
(Measures of intent to report)
1. Based on the information presented above, how likely is it that you would inform the engagement audit partner that
Michael Jenkins has an employment offer from Modern Appliances? (circle one number)
1 2 3 4 5 6 7
Extremely UNLIKELY Extremely LIKELY
that I would that I would
inform partner inform partner
2. Based on the information presented above, indicate the LIKELIHOOD (percentage the event occur
seniors in the office who have become aware of this situation would inform the engagement audi
0123 456789 10
NEVER ALWAYS

(Measures of seriousness,
3. Please assess the seriousness (i.e.,
audit engagement after receiving
1 2 3 4 5 6 7
Very Low Very High
4. Please assess the personal costs to you as an audit staff person (i.e., trouble, risk, di
engagement partner of Michael Jenkin's employment offer.
12 3 4 5 6 7
Very Low Very High
5. Please assess your personal responsibility (i.e., duty or obligation) for informi
Michael Jenkin's employment offer.
1 2 3 4 5 6 7
Very Low Very High
6. How would you assess the risk of the current year's unaudited financial stat
material misstatement? (circle one)
VERY LOW LOW MODERATE HIGH

7. How realistic did you find this problem to be?

12 3 4 5 6 7
Extremely Extremely
UNREALISTIC REALISTIC

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 Mary B. Curtis

Exhibit 2
(Continued)

8. For this case, did you feel that others were more likely to inform the engagement partner than you?
YES NO

Please explain why you feel that others would act differently from
Individual Profile Information
1. Work experience: Approximately how many months have you be
a. as an auditor in public accounting?_months
b. in other types of professional positions?_months
c. in non-professional positions?_months
2. What is your gender?
MALE FEMALE

3. What year were you born? 19_

4. Over your work experience, have you ever detected a questionable act by persons to whom
such as client personnel or people in other departments?
YES NO

5. Over your work experience, have you ever detected a questionable act, s
with whom you work?
YES NO

conditioning caused by previous or external

performance influ
appraisal common to
ences, such as exposure to excessive
this study heat
is theand
return of a midt
humidity, receiving a gift ofwhich
very as previous
small value,research (Lewi
exposure to happy or depressing1993; Smith
films, and Ellsworth, 1987) c
or interper
sonal feedback and performance appraisal
affective (see similar to oth
reactions
Gerrards-Hesse et al., 1994 fortechniques.
a review). Many of
If threats to goal att
these studies demonstrated significant correlations
forces that actually create affect du
appraisal,
between mood and social judgments however,
of other indi it is necessa
viduals or situations, and support theidentifying
merely notion that the grade each s
very minor and common events to in determine how
our daily life canthe feedback
influence mood, and therefore, vidual's goals. Otherwise, the stand
judgment.
Since an objective of this paperrecipient compares
was to simulate, to the feedback
the greatest extent possible, aTherefore, the mood elicitation i
mood manipulation
common to organizational settings pleted (Brief, 2001),after reviewing
immediately
performance feedback was selected as the manipu
asked participants to compare their
lation technique. Kluger et al. 1) (1994)
to theexplain that
grade expected (AffectExa
performance appraisal impacts they
goal had received in other acc
attainment,
resulting in affective reaction. A(AffectComp). These
negative appraisal is comparativ
expected
harmful to an individual's goals and to negative
leads to indicate the extent of
affect, whereas a positive appraisal is beneficial
and therefore each to
participant's aff
their
goal attainment and therefore leads feedback.
to positive Research support
affect.
this
This prediction is also consistent affect
with will
goal continue into task
setting
theory (e.g., Locke and Latham, tion (Kluger
1990). et al.,
The form of 1994; Isen, 19

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 Are Audit-related Ethical Decisions Dependent upon Mood? 201

Results reporting intentions measures but not for AffectEx

Affect and reporting intentions
The first hypothesis proposed that more negative
mood is associated with reduced intentions to report
(path c in Figure 1). Recall that two dependent
measures for reporting intentions were employed:
a self-reporting measure and indication of the
likelihood that others would report. Additionally,
two measures of mood were made: exam grade
compared to expectations (AffectExam) and com
pared to other classes (AffectComp).
In bivariate correlation analysis among these four
variables (Table II), only the association between
Personal Reporting Intentions and AffectComp is
significant (p < 0.05). Multivariate analysis (Table III)
indicates significance for AffectComp across both
TABLE II
Pearson product correlation coefficients between variables
am. Univariate results (also reported in Table III)
suggest that AffectComp is significantly related to
both reporting intention variables and AffectExam to
neither.
It is interesting that the two mood measures result
in differing associations with the dependent mea
sures. While significant, the correlation between the
two mood measures (0.699) is not as great as would
be expected from variables measuring exactly the
same construct. Additionally, combining the two
scores results in significantly reduced r scores. Thus,
it appears that there is a difference between asking
the questions: Is this what you expected? and Is this
how you have performed in other similar courses?
In retrospect, it seems logical that the comparison
to all other classes is a more reliable measure than the
comparison to expectations in this particular course.

Mean (SD)b Personal Other's Seriousness Responsibility Personal AffectExam

Reporting Reporting Cost
Intention Intentions

Personal 5.75 (1.32)

Reporting
Intention
Others' 7.31 (1.92) 0.301
Reporting
Intentions
Seriousness 6.05 (1.14) 0.242 0.269
Responsibility 6.10 (1.16) 0.460* 0.260* 0.360
Cost 5.25 (1.39) 0.061 -0.152* 0.094 0.061
AffectExama 3.57 (1.05) -0.082 -0.019 -0.005 -0.052 0.096
AffectCompa 3.51 (1.17) -0.155* -0.098 -0.134* -0.152* 0.009 0.699

*p<0.05 (2-tailed), **p<0.01 (2-tailed).

aAffect is coded such that a larger number represents more negative affect.
The scales: for the affect variables, l-to-5; for Others' Reporting Intentions, l-to-10; and l-to-7 for all other variables.
These variables are the participant's response to the following questions:
Personal Reporting Intentions - How likely is it that you would inform the engagement audit partner (1 = unlikely,
7 = very likely).
Other's Reporting Intentions - How likely that other audit seniors would inform the engagement audit partner
(1 = unlikely, 10 = very likely).
Serious - Seriousness of Michael Jenkin's act (1 = not serious, 7 = very serious).
Responsibility - Personal responsibility for informing the engagement partner (1 = not responsible, 7 = very
responsible).
Cost ? Personal cost to you of informing the audit engagement partner (1 = very low, 7 = very high).
AffectExam ? Was your exam score better or worse than expected (1 = better, 5 = worse).
AffectComp - Was your exam score better or worse than scores in other accounting classes (1 = better, 5 = worse).

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 202 Mary B. Curtis

TABLE III
Effect of mood on reporting intentions

Panel A: MANOVA results

Dependent variables
Personal Reporting Intentions
Others' Reporting Intentions
Independent variable F-valued Numerator DF Denominator DF Pr > F
AffectExam 0.55 2 216 0.581
AffectComp 2.77 2 216 0.065
Panel B: ANO VA Results

Dependent variable: Personal Dependent variable: Others'

Reporting Intentions Reporting Intentions
Independent variable F-value Pr > F F-value Pr > F
AffectExam 0.29 0.295 1.03 0.155
AffectComp 4.10 0.022* 3.05 0.041*
aThe following Manova test criteria were used: Wilks' Lambda, Pillai's Trace, Hotelling-Lawley Tra
Root (Panel A).
**p<0.01 (1-tailed), */)<0.05 (1-tailed) (Panel B).
Removing AffectExam from this analysis results in Manova F=2.99, ^=0.052, with univariate
p = c.Oll and F = 2.10, F = 0.07 (Panel B).
These variables are the participant's response to the following questions:
AffectExam ? Was your exam score better or worse than expected (1 = better, 5 = worse).
AffectComp ? Was your exam score better or worse than scores in other accounting classes (1 = b
Personal Reporting Intentions - How likely is it that you would inform the engagement audit par
(1 = unlikely, 7 = very likely).
Other's Reporting Intentions - How likely that other audit seniors would inform the engagement
(1 = unlikely, 10 = very likely).

While students may not know how they will do in a by another are related to greater per
behavior
single course or even how one score compares to
seriousness, greater perceived personal responsib
other students' scores in that class, theyand
do lower
know perceived personal cost. Results pres
how they have performed overall in the past.IV support all three of these relationsh
in Table
Comparing a grade to all other courses provides a
standard that is fixed, historical and spread over
Ethical decision-making process
many instances, particularly for seniors. Comparing
to a goal for this class alone may require a standard
The third hypothesis proposed that serious
that is not yet established - students may have less of
responsibility, and cost mediate the relatio
an idea what to expect from a course in which they
between mood and reporting intentions as dep
are currently enrolled. Because of this lack of asso
in Figure 1. The hypothesized mediation was t
ciation between AffectExam and Reporting Inten
according to Baron and Kenny's (1986) four
tions, further analysis is focused on AffectComp.
ditions for mediation.
The first condition for mediation, that the pred
Results from the Graham model Affect, be significantly associated with the med
Seriousness, Responsibility, and Cost (Figure 1,
Based on the Graham model, H2 predicts a), isthat
satisfied in regard to Seriousness and Res
bility, but not with regard to Cost (Table V
greater individual intentions to report questionable

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 Are Audit-related Ethical Decisions Dependent upon Mood? 203

TABLE IV
Effect of Seriousness, Responsibility and Cost on reporting intentions

Panel A: MANOVA results

Dependent variables
Personal Reporting Intentions
Others' Reporting Intentions
Independent variable F-value* Numerator DF Denominator DF Pr>F

Serious 5.309 2 215 0.006

Responsibility 22.984 2 215 0.000*
Cost 4.764 2 215 0.009*
Panel B: ANO VA results

Dependent variable: Personal Dependent variable: Others'

Reporting Intentions Reporting Intentions

Independent variable F-value Pr>F F-value Pr>F

Serious 1.777 0.092 10.202 0.001**
Responsibility 43.942 0.000*" 8.108 0.003**
Cost 0.204 0.326 8.404 0.002**

*The following Manova test criteria were used: Wilks' Lambda, Pillai's Trace, Hotelling-Lawley Trace and Roy's
Greatest Root (Panel A).
*p<0.05 (1-tailed), **p<0.01 (1-tailed) (Panel B)
These variables are the participant's response to the following questions:
Personal Reporting Intentions - How likely is it that you would inform the engagement audit partner
(1 = unlikely, 7 = very likely).
Other's Reporting Intentions - How likely that other audit seniors would inform the engagement audit partner
(1 = unlikely, 10 = very likely).
Serious - Seriousness of Michael Jenkin's act (1 = not serious, 7 = very serious)
Responsibility - Personal responsibility for informing the engagement partner (1 = not responsible, 7 = very
responsible).
Cost - Personal cost to you of informing the audit engagement partner (1 = very low, 7 = very high).

second condition of mediation, that the predictor,
Affect, be significantly associated with the dependent
variables, Reporting Intention (Figure 1, Path c), is
satisfied in the results previously reported for the first
hypothesis (Table III). The third condition, that the
mediators, Seriousness, Responsibility, and Cost, be
significantly associated with the dependent variables,
Reporting Intentions, is satisfied in the results previ
ously reported for the second hypothesis (Table IV) in
which Seriousness, Responsibility, and Cost are sig
nificantly related to Reporting Intentions (Figure 1,
Path b). The fourth condition, that the predictor, Af
fect, have less of an impact on the dependent measures,
Reporting Intentions, after controlling for the media
tors, is satisfied by comparing the significance of
the mood variable reported in Table III to that in
Table VI. As Table VI depicts, AffectComp becomes
non-significant across the Reporting Intention vari
ables when Seriousness, Responsibility and Cost are
controlled for (Table VI: MANOVA: F(l) = 0.93,
p>0.39; ANO VA: F(l) = 1.76, p = 0.09;
F(l) = 0.36, p = 0.27, respectively) compared to
when Seriousness, Responsibility, and Cost are not
controlled for (Table III: MANOVA: F(l) = 2.77,
p = 0.065; ANOVA: F(l) = 4.10, p = 0.02;
F(l) = 3.05,/) = 0.04, respectively).8
Finding that Seriousness and Responsibility
mediate the relation between Affect and Reporting
Intentions supports H3a and H3b and offers an
explanation for how mood is related to Reporting
Intentions. More negative mood reduces percep
tions of the seriousness of an act and one's personal

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204 Mary B. Curtis

TABLE V
Effect of mood on Seriousness, Responsibility and Cost

Panel A: MANOVA results

Dependent variables:
Seriousness of act
Responsibility for reporting act
Personal cost of reporting act
Independent variable F-value* Numerator DF Denominator DF Pr > F

AffectComp 2.304 3 216 0.078

Panel B: ANO VA results

Dependent variable: Dependent variable: Dependent variable:

Seriousness Responsibility Cost
Independent variable F-value Pr > F F-value Pr > F F-value Pr > F
AffectComp 4.001 0.024* 5.151 0.012* 0.018 0.450
*The following Manova test criteria were used: Wilks' Lambda, Pillai's Trace, Hotelling-Lawley Trace and Roy'
Greatest Root (Panel A).
*p<0.05 (1-tailed), **p<0.01 (1-tailed) (Panel B).
These variables are the participant's response to the following questions:
AffectComp - Was your exam score better or worse than scores in other accounting classes (1 = better, 5 = worse).
Serious - Seriousness of Michael Jenkin's act (1 = not serious, 7 = very serious).
Responsibility - Personal responsibility for informing the engagement partner (1 = not responsible, 7 = ve
responsible).
Cost - Personal cost to you of informing the audit engagement partner (1 = very low, 7 = very high).

responsibility for reporting that act. Since these
have a positive relationship with reporting inten
tions, reductions in seriousness and responsibility
will reduce one's inclination to whistle-blow. On
the other hand, the expectation that negative mood
would increase perceptions of personal cost for
reporting the act was not supported, suggesting that
perceptions of cost are less susceptible to the
influence of an individual's temporary affective
state.
Implications
Ethical propensities are generally considered to be
stable over time. This research suggests that ethical
decisions, and the factors which influence those
decisions, can vary across mood states, depending
upon such a relatively minor event as performing
poorly on an exam.
As predicted by the model, the reporting
intentions of accounting seniors were related to
perceptions of seriousness of the unethical behavior,
responsibility for reporting the behavior, and possi
ble cost of reporting. Expectations that others would
report the unethical behavior of a colleague were
related to all three determinants, while expectations
that participants would personally report the
behavior were related only to serious and responsi
bility. In evaluating the antecedents of these deter
minants, more negative mood reduced perceptions
of seriousness and responsibility, but did not exhibit
the expected increase in the perceived cost of
reporting a colleague's unethical behavior.
While differences in ethical decisions are explained
here as involving evaluative judgment due to affect,
rather than due to knowledge recall as Gaudine and
Thorne (2001) propose, the two theories may actually
be closely related. Kida and Smith (1995) assert that
individuals encode affective reactions to knowledge
along with that knowledge in memory, and that we
naturally recall knowledge whose stored affective
reaction is consistent with our mood state at the time
of recall. Thus, with the broad searches characteristic

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 Are Audit-related Ethical Decisions Dependent upon Mood? 205

TABLE VI
Test of mediation effect of Seriousness, Responsibility, Cost and AffectExam on reporting intentions

Panel A: MANOVA results

Dependent variables
Personal Reporting Intentions
Others' Reporting Intentions
Independent variable F-valuea Numerator DF Denominator DF Pr>F

Seriousness 5.03 2 214 0.007

Responsibility 21.76 2 214 0.000*
Cost 4.73 2 214 0.01**
AffectComp 0.93 2 214 0.395
Panel B: ANOVA results

Dependent variable: "Self Dependent variable: "Others':

Reporting Intentions Reporting Intentions

Independent variable F-value Pr>F F-value Pr>F

Seriousness 1.47 0.113 9.76 0.001**
Responsibility 41.58 0.000** 7.60 0.003**
Cost 0.24 0.314 8.29 0.002**
AftComp 1.76 0.093 0.36 0.274

aThe following Manova test criteria were used: Wilks' Lambda, Pillai's Trace, Hotelling-Lawley Trace and Roy's Greatest
Root (Panel A).
*><0.05 (1-tailed), **><0.01 (1-tailed) (Panel B).
These variables are the participant's response to the following questions:
AffectComp - Was your exam score better or worse than scores in other accounting classes (1 = better, 5 = worse).
Personal Reporting Intentions - How likely is it that you would inform the engagement audit partner
(1 = unlikely, 7 = very likely).
Others' Reporting Intentions - How likely is it that other audit seniors would inform the engagement audit partner
(1 = unlikely, 10 = very likely)
Serious - Seriousness of Michael Jenkin's act (1 = not serious, 7 = very serious).
Responsibility - Personal responsibility for informing the engagement partner (1 = not responsible, 7 = very responsible).
Cost ? Personal cost to you of informing the audit engagement partner (1 = very low, 7 = very high).

of substantive processing strategies, affective state at
the time of recall can serve as a retrieval cue,
impacting which information is recalled and applied
to the task at hand (Blaney, 1986; Rose, 2001).
Therefore, as Gaudine and Thorne (2001, 180) pro
pose that an individual's judgment "reflects the situ
ational factors that have led to the use of a particular
cognitive structure," these results suggest that the
situational factors considered should include external
events that have influenced the current mood-state as
well as situational factors within the judgment con
text. Thus, this research extends Gaudine and Thorne
(2001) by both testing propositions in a different
theoretical context (social judgment theory) and
expanding consideration of mood and ethical
judgments to include negative affect.
These results help us understand when and why
individuals choose to report the unethical behavior of
others. Two aspects of these results require further
consideration. First, affect's impact on reporting
intentions raises questions regarding the perception of
the social desirability of whistle-blowing in public
accounting. It was found that those with negative af
fect, and consequently a more negative view of the
world, reported a lesser likelihood that they would
report unethical behavior. This suggests a disapprov
ing perception of whistle-blowing, itself ? despite
Time Magazine's 2002 elevation of whistle-blowers

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 206
to Persons of the Year. In fact, in a debriefing session
after the experiment, many students expressed the
desire to attempt alternative actions before whistle
blowing, such as talking to the manager about his/her
behavior. A 2002 survey by Walker Research
(Internal Auditor, 2003) reported that only 48% of
their 2800 respondents said they would feel com
fortable reporting ethical violations and only 35% of
those with knowledge or suspicion of violations
actually had reported it. What are the implications for
the increased emphasis on whistle-blowing as an
organizational control?
Latane and Nida (1981) suggest diffusion of per
ceptions of responsibility, resulting in a decrease in
perceptions of personal responsibility, may also
increase as one's exposure to similar problems in
creases. Certainly, the plethora of highly publicized
ethical failures could create such diffusion. The result
of this could be a decline in auditors' perceptions of
personal responsibility for reporting the unethical
behavior of others. This notion warrants further
study.
Probably the greatest limitation of this study is the
use of student participants in regard to a professional
decision. Although these students were about to
graduate, were an average of 27 years old with an
average of over 2 years of professional experience
and over 3 years of non-professional work experi
ence, few of them had worked in public accounting
prior to this exercise. It may be difficult for these
students to know what they would do, once they
were actually placed in an audit setting, with the peer
and organizational pressures of a professional envi
ronment. Additionally, affect may be a particularly
difficult issue to study with student surrogates. Bless
et al. (1996) found that participants in a positive
mood apply general world knowledge structures to
tasks, while those in more negative moods employ
more task-specific structures. Thus, even experi
enced auditors may ignore their training and employ
more general structures when in positive moods,
resulting in the same mood effects experienced by less
experienced participants, but with negative affect
experienced auditors would tend to employ task
specific knowledge structures not possessed by the
inexperienced participants. However, there is no
reason to believe that auditors possess task-specific
knowledge structures for whistle-blowing since this
is not a common activity in public accounting. Thus,
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Mary B. Curtis
both practicing auditors and seniors in college may
employ general structures in this context simply be
cause they possess no task-oriented structures for the
situation. Additionally, despite their status as stu
dents, many of these participants would be in the
same position as the fictional whistle-blower in the
case in less than a year. Finally, notwithstanding these
concerns, the impact of affect on the ethical decision
making process itself is important to explore.
Opportunities for future research abound in this
area. First, the participants and experimental context
for this study were based in the field of auditing.
While these results should generalize to society at
large, this assertion should be tested empirically. It
may also be of interest to further explore the nature
of public accounting firms in regard to their ethical
climate. For example, while corporate culture and
particularly tone-at-the-top have been recognized as
important components of internal control in the
corporate world, few studies have explored audit
firm ethical failures or organizational culture, in
general. Additionally, suggestions that those at vari
ous levels in firms differ in ethical reasoning
(Ponemon, 1990), may have different organizational
commitment and that those with greater experience
may react differently to ethical dilemmas by
employing different types of knowledge structures,
all emphasize the need to test the model with indi
viduals at different experience levels. Finally, while
the Sarbanes-Oxley Act (2002) requires the estab
lishment of anonymous reporting mechanists in
corporations, it is not known whether individuals
may be more willing to report the ethical failures of
others if permitted to remain anonymous or whether
the antecedents of such decisions differ from those of
reporting personally.
Notes
Mood is defined as an affective or "feeling state",
which has no specific focus and is not directed toward a
specific object. Mood relates to the feeling state, which
need not be about anything in particular and may have
no direct cognitive cause (Clore et al., 1994). While
some evidence (Judge and Bretz, 1993) supports the
notion that affect can be either a state (i.e., measures of
subjective well-being) or trait (i.e., measures of affective
disposition), this research deals with transitory affect.
 Are Audit-related Ethical Decisions Dependent upon Mood? 207
Accordingly, Mood and Affect are used synonymously
in this paper.
The term "whistle-blow" may denote different forms
of reporting. Some, including the popular press, label any
act of reporting the unethical acts of others as "whistle
blowing," whether made anonymously or not. Others
consider this term to relate only to the use of anonymous
reporting channels or methods. In this study, the term is
used consistent with the former, more broader, context.
It is possible that mood could have the opposite
effect on desires to whistle-blow outside of the organi
zation. With more negative affect, one would look less
favorably on their organization and may seek reprisal for
perceived ills.
For example, in Miceli et al. (1991), the steps an
individual must take in deciding whether to become a
whistle-blower are consistent with Graham's model.
These steps include: recognition of wrongdoing, deter
mining whether the activity is serious enough to war
rant intervention, evaluating whether the individual is
responsible for taking action and, finally, evaluating
available actions and their associated costs and benefits.
Many ethical decision-making models include similar
concepts. For example, Jones (1991) states that moral
intensity is central to ethical decision making while
Barnett and Valentine (2004) found that the moral inten
sity factor Jones defined as magnitude of consequences
demonstrated the strongest relationship with the ethical
decision-making process in two marketing scenarios.
6 Since this is a violation of the AICPA Code of Pro
fessional Conduct Rule 101 on Auditor Independence
(AICPA, 1988), the auditor is obligated to remove him
self or herself from the audit engagement until the
employment issue is resolved. Participants were aware
of this rule.
Analyses employing the two measures of mood sepa
rately resulted in consistently greater r values than anal
yses with the sum of the two measures - from 2 to
8 times greater. Principal components factor scores yiel
ded similar analytical results to the sum variable. Thus,
the decision was made to present results for the two
mood measures independently.
Table I indicates that gender is significantly related to
many of the experimental variables, although not to
Affect. Since there is not an even split on gender among
participants (as in many accounting classrooms today),
sensitivity analysis was used to rule out Gender as an
alternative explanation for the results reported. When
Gender was added to the analyses reported in Tables III
and VI, no significant impact was observed. That is, any
significant relationship continued to be significant in the
presence of the Gender variable, any marginally signifi
cant relationship continued to be marginally significant
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in the presence of the Gender variable, and any non-sig
nificant relationship continued to be non-significant in
the presence of the Gender variable.
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