Ethical Principles vs. Ethical Rules: The Effect of Code of Conduct Generality on Audit Independence Judgments

Terri L Herron
University of Montana–Missoula

David L Gilbertson
Western Washington University

Abstract: Currently, the AICPA Code of Professional Conduct (Code) includes both broad Principles and specific Rules. Recent calls have been made to move accounting and auditing standards to a more principles-based perspective. The supposition is that broad Principles would eliminate the legalistic emphasis that Rules may encourage, and accountants’ behavior would be more ethical and uniformly so. However, this supposition has yet to be empirically tested. This experiment examines the effect of the generality of the Code on independence assessments. We hypothesize, and our evidence supports, that participants’ conservatism on client acceptance assessments depends on their level of moral development. This interaction can result in a mismatch between one’s level of moral development and the form of the profession’s ethical expectations. Further, this mismatch results in less conservative assessments and lack of consensus. Given the popularity of the view that rules-based standards are undesirable, these findings have significant implications for the profession.

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