THE INFLUENCE OF ETHICAL WORK CLIMATE (EWC) AND DEMOGRAPHIC VARIABLES ON AUDITORS’ ETHICAL EVALUATION

Abstract

Ethics are considered to be important in audit practice. The intensive works lead ethical dilemma, especially when there is no exact rules exist. Researchers have responded by attempting to investigate and analyze the ethical behavior. While each ethical reasoning process is important, the ability of auditors to evaluate ethical problems (second phase of Rest’s ethical reasoning process) that may not be obvious should be studied and understood. This study will indentify the influence of ethical work climate (EWC) and specified demographic variables (age, gender, and length of experience) on ethical evaluation. The climate of accounting public firm is examined based on Victor and Cullen’s ethical work climate type. Findings in this study are based on response to scenarios that is related to cost and time pressures in the fieldwork such as underreporting of time (URT) and quality threatening behavior (QTB). We targeted the respondents who work as professional public auditors in Java Island, Indonesia. From 300 questionnaires distributed, researcher got feedback from 283 auditors. The data is analyzed by using structural equation model method. Structural equation method is used because ethical evaluation and ethical work climate cannot be measured directly. The finding revealed that ethical work climate has significant influence on auditors’ ethical evaluation. Ethical work climate which exist in public accounting firm in Java area is composed by six dimensions such as efficiency, friendship, team interest, social responsibility/public interest, company rules and procedures, and laws and professional codes climates. Specified demographic variables are found to give insignificant influence on auditors’ ethical evaluation. Implications of findings and areas for future research are discussed in the last chapter.