Both the Sarbanes–Oxley Act of 2002 and the Dodd-Frank Act of 2010 include clawback provisions that require executives to pay back incentive compensation earned on financial statements that are restated in a subsequent period. Such provisions intend to reduce unethical reporting behavior by executives who otherwise might be more inclined to misstate financial statements to boost incentive-based compensation. However, such provisions could promote rather than deter unethical behavior. In particular, Pyzoha :2515–2536, 2015) finds that, under certain conditions, executives are less (...) willing to restate financial statements in the presence of a clawback policy. Similarly, auditors might also act unethically by being less likely to propose restatements in the presence of clawbacks to avoid upsetting management. To examine this possibility, this study reports the results of three experiments that examine the effect of clawback provisions on auditor judgment. Contrary to expectations, our three experiments, along with supplemental qualitative evidence consistently indicate that clawbacks do not affect auditors’ propensity to propose restatements. These results suggest that a decrease in the number of restatements in a clawback environment will not be due to auditors acting unethically to appease management. The effects of clawbacks on auditors’ risk assessments, however, are less conclusive. As such, we offer potential post hoc explanations to guide future research. (shrink)

The pandemic has altered accounting education with the widespread adoption of remote evaluation platforms. We apply the lens of the fraud triangle to consider how the adoption of remote evaluation influences accounting students’ ethical values by measuring the incidence of cheating behavior as well as capturing their perceptions of their opportunity to cheat and their rationalization of cheating behavior. Consistent with prior research, our results show that cheating is higher in the online environment compared to remote evaluation, although the use (...) of proctoring software in online evaluation appears to mitigate but not eliminate students’ the unethical behavior. However, cheating was not reduced when students attest to an honor code during the beginning of an exam. Nonetheless, we find that the use of both proctoring software and honor codes reduces students’ perceptions of opportunity and rationalization of cheating behavior. It follows that the remote evaluation environment may unintentionally be negatively influencing the ethicality of students and future accounting professionals by promoting cheating behavior and, by so doing, negatively influencing the development of unethical values of accounting students and future accounting professionals. Educators should consider the use of appropriate educational interventions to reduce the incidence and opportunities for unethical behavior and, by so doing, help promote the development of ethical values in future accounting professionals. Further implications for teaching and the accounting profession are discussed. (shrink)

This study examines how codes of conduct, monitoring, and penalties for dishonest reporting affect reporting honesty in an online labor market setting. Prior research supports the efficacy of codes of conduct in promoting ethical behavior in a variety of contexts. However, the effects of such codes and other methods have not been examined in online labor markets, an increasingly utilized resource that differs from previously examined settings in several key regards (e.g., transient workforce, lack of an established culture). Leveraging social (...) norm activation theory, we predict and find experimental evidence that while codes of conduct and monitoring without economic penalties are ineffective in online settings, monitoring with economic penalties activates social norms for honesty and promotes honest reporting in an online setting. Further, we find that imposing penalties most effectively promotes honest reporting in workers who rate high in Machiavellianism, a trait that is highly correlated with dishonest reporting. In fact, while in the absence of penalties we observe significantly more dishonest reporting from workers who rate high versus low in Machiavellianism, this difference is eliminated in the presence of penalties. Implications of these findings for companies, researchers, online labor market administrators, and educators are discussed. (shrink)