AUDITOR QUALITY AND STAGE OF MORAL REASONING

Abstract

Recent audit failures call into question auditors’ ethical integrity. Although inconclusive, the accounting literature suggests that moral reasoning may be an important component of auditor quality. The purpose of our study is to empirically test whether moral reasoning is an element of auditor quality.

Assuming Big Five firms hire higher quality auditors than non-Big Five firms, auditors’ moral reasoning is assessed and compared across firm type. We found that Big Five auditors’ stage of moral reasoning is significantly higher than non-Big Five auditors, suggesting a link between auditor quality and moral reasoning. We also investigate whether there are differences in the ethical socialization processes across firm type. Although no statistically significant differences were found, auditors exhibited an ethical socialization process that was directionally opposite than that reported by Ponemon (1990, 1992b). Possible explanations for these results and implications for future research are discussed.