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Asian Review of AccountingEmerald Article: Chinese auditors' views about independence and employervalues

Ying Han Fan, Gordon Francis Woodbine, Glennda Scully

Article information:

To cite this document: Ying Han Fan, Gordon Francis Woodbine, Glennda Scully, (2012),"Chinese auditors' views about independence

nd employer values", Asian Review of Accounting, Vol. 20 Iss: 1 pp. 5 - 5

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Article Title Page

Chinese auditors views about independence and employer values

Author Details

Author 1 Name: Ying Han FanDepartment: School of AccountingUniversity/Institution: Curtin University of TechnologyTown/City: PerthCountry: Australia

Author 2 Name: Gordon WoodbineDepartment: School of AccountingUniversity/Institution: Curtin University of TechnologyTown/City: PerthCountry: Australia

Author 3 Name: Glennda Scully

Department: School of AccountingUniversity/Institution: Curtin University of TechnologyTown/City: PerthCountry: Australia

Corresponding author: Gordon WoodbineCorresponding Authors Email:

Please check this box if you do not wish your email address to be published

Biographical Details (if applicable):

[Author 1 bio] Dr. Ying Han Fan is based at the School of Accounting at Curtin University of Technology, Perth, Australia.

[Author 2 bio] Dr. Gordon Woodbine is based at the School of Accounting at Curtin University of Technology, Perth, Australia.

[Author 3 bio] Professor Scully is the acting Head of School of Accounting at Curtin University of Technology, Perth, Australia.

All three authors share an interest in auditing and are actively involved in behavioural research involving existing and futureaccountants. A number of their joint papers have been conferenced and published in refereed journals.

Structured Abstract:

Purpose: This paper describes the results of a cross-sectional survey of Chinese auditors that examines their views aboutindependence and client relationship issues associated with the current Code of Professional Conduct. The study also compares thefindings with attitudes about the perceived ethical environment of their workplaces.

Design: During late 2006, 578 useable questionnaires were obtained from members of the Chinese Institute of Public Accountantsregistered with four regional chapters. The empirical research was exploratory and involved the construction of a scale formeasuring attitudes towards independence issues and a modified version of the Corporate Ethical Values scale. (Hunt, Wood, andChonko, 1989)Findings: Auditors clearly identify with the importance of Codes of practice and indicate that their views are significantly affected byobservations about the ethical climates associated with their immediate workplaces. Codes of practice are seen to be relevant thegreater the concern about the ethicality of their workplaces, although attitudes were tempered when client relationship matters areconsidered, suggesting that some degree of cultural tolerance of questionable activities is inevitable, and thattolerance increases with age.Originality: This study is the first to directly access Chinese practitioners in order to measure attitudes towardswestern based standards of practice in association with their workplace conditions. It is a sizable survey providinguseful insights into how practitioners are coping with the demands of their profession in China.

Keywords: Code of Conduct in China, audit independence, corporate ethical values


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Chinese auditors views about independence and employer values

Structured Abstract:

Purpose: This paper describes the results of a cross-sectional survey of Chinese auditors

that examines their views about independence and client relationship issues associated

with the current Code of Professional Conduct. The study also compares the findings

with attitudes about the perceived ethical environment of their workplaces.

Design: During late 2006, 578 useable questionnaires were obtained from members of

the Chinese Institute of Public Accountants registered with four regional chapters. The

empirical research was exploratory and involved the construction of a scale for measuring

attitudes towards independence issues and a modified version of the Corporate Ethical

Values scale. (Hunt, Wood, and Chonko, 1989)

Findings: Auditors clearly identify with the importance of Codes of practice and indicate

that their views are significantly affected by observations about the ethical climates

associated with their immediate workplaces. Codes of practice are seen to be relevant the

greater the concern about the ethicality of their workplaces, although attitudes were

tempered when client relationship matters are considered, suggesting that some degree of

cultural tolerance of questionable activities is inevitable, and that tolerance increases with

age.

Originality: This study is the first to directly access Chinese practitioners in order to

measure attitudes towards western based standards of practice in association with their

workplace conditions. It is a sizable survey providing useful insights into how

practitioners are coping with the demands of their profession in China.

Key words: Code of Conduct in China, audit independence, corporate ethical values


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1. IntroductionIf the Peoples Republic of China wishes to continue to sustain its current growth

and deserve its status as a developed nation in the long term, then it is essential that it

establish a sound and credible financial information infrastructure. Company auditors

play an important role in achieving this objective and their belief in and adherence to a

Code of Professional Conduct is crucial in encouraging audit independence. The purpose

of a Code of Professional Conduct is to guide and establish high professional and ethical

standards in business (Finn et al., 1988). It provides minimum practice standards that are

to be applied diligently by accountants and auditors in the conduct of their professional

duties. The Chinese version titled General Standard on Professional Ethics (GSPE) was

issued in 1993. In 2003, Chinese accounting regulators adopted the concepts

Independence in FactandIndependence in Appearance fashioned on the Code issued by

the International Federation of Accountants (IFAC). The Practice Guidelines onGeneral

Standards of Professional Ethics was issued after these two independence concepts were

adopted.

Issues to be considered in this paper include: Is this western based standard

acceptable to Chinese auditors and how do they view issues of independence? One way

to determine the extent to which the Chinese version of the Code is being applied to

encourage audit independence is to gauge the perceptions of its importance and relevance

in the minds of practicing auditors.

There has been limited research on the use and application of the Code of

Professional Conduct in China. Davison and Chang (2001) examined the views of

Chinese auditors on a number of important auditing topics, which included the Code of


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Professional Conduct. They found that the Code of Professional Conduct was rated

relatively highly and that Chinese auditors believed that it is important for accounting

professionals. However, their study did not examine the content of the Chinese Code of

Professional Conduct or the auditors views about the content in any detail. The authors

of this study believe thatIndependence in Appearance is as important asIndependence in

Factand could be impaired as a result of cultural influences. Thus the first motivation of

this study is to find out the Chinese auditors views about the General Standard on

Professional Ethics. It focuses on audit independence in two forms: (1) auditors integrity

and objectivity and (2) audit-client relationship.

The authors of this study are also interested in finding out how Chinese auditors

identify their firms ethical culture and how this might affect their perceptions about the

value of the Code. Attention is to be given to examining perceptions about their

managers ethical behaviour and their firms system of dealing with identified forms of

unethical practice. These two considerations were identified in Hunt et al.s (1989) study

and were used in prior studies in countries other than the Peoples Republic of China. The

motivation for this research is summarized in the following two research questions:

1. Do Chinese auditors view their Code of Professional Conduct as adequate asit relates to issues of independence and audit-client relationships?

2. What organizational and personal factors are likely to affect the views ofChinese auditors?

The second question examines the connection between Chinese auditors views

about their firms ethical values, and their attitudes relating to the two elements of the

Code mentioned above. This question also examines the connection between Chinese


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auditors personal factors such as age, education, experience, position and their attitudes

towards the Code of Professional Conduct.

2. Literature review

Chinese Auditors Perceptions of the Code of Professional Conduct

A fundamental premise of any professional code is independence. Audit

independence is embodied in statutes and professional standards in many countries. It is

generally agreed that independence deals with the actual and perceived ability of

accountants (including auditors) to act with integrity and objectivity (Windal and Corley,

1980). According to Mautz and Sharaf (1961), there are two components of

independence; practitioner independence and professional independence. Practitioner

independence isthe real independence of the individual practitioner in the performance

of his work (p. 204). It has to do withthe ability of the individual practitioner to

maintain the proper attitude in the planning of his audit program, the performance of his

verification work, and the preparation of his report (p. 205). Professional independence

is the appearance to the public of the independence of a group of professionals. Hence,

two forms of independence have emerged as relevant: Independence in Fact and

Independence in Appearance.

According to the Law of the Peoples Republic of China on Certified Public

Accountants (1993), the role of a Certified Public Accountant (CPA) is to protect the

public and investors interests and promote the development of a sustainable economic

market (Article 1). The General Standards on Professional Ethics (GSPE) wasissued by

the CICPA in accordance with this legislation. In China, there is no formal definition of

audit independence in the Auditing Standards but the General Standards on Professional


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Ethics (GSPE) adopted the concepts ofIndependence in Fact and Independence in

Appearance in the standard. For example, the GSPE requires all CPAs to observe the

principles of independence, objectivity and fair dealing in performing professional

activities (Article 4) and to maintain independence in factand in appearance (Article 5).

It also requires that individual judgments must not be influenced by others, or by any

circumstances and personal feelings (Article 9). Furthermore, it requires all members

avoid any activities which could impair audit independence (Articles 7 and 8). Thus the

Chinese Code provides controls to ensure a high quality of accounting and auditing

services and a standard which Chinese auditors must comply with when making ethical

decisions. Its formulation and implementation are supervised by the CICPA.

Jakubowski et al. (2002) compared the Codes of Professional Conduct of

certified/chartered accountants across eight countries and regions including Hong Kong

and Taiwan. Results indicate that the rules relating to independence, objectivity, and

conflicts of interest are similar however countries like the U.S., Canada, and Australia are

more likely to use explicit language in their Codes. Countries like South Korea, India,

Malaysia, Hong Kong, and Taiwan are less explicit in their formulations. Jakubowski et

al. (2002) used Halls (1976) low and high context countries classifications to explain

the differences. The content will be explicit and carry a message in high context countries

and be less informative and couched in general terms in low context countries. Chinas

position is considered similar to that of Hong Kong and Taiwan. It represents a low

context culture and its Code of Professional Conduct focuses on general rules. In 2003,

the CICPA issued Practice Guidelines on General Standards of Professional Ethics to

provide detailed guidelines to assist CPAs in performing professional services. In its


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October 2009 revision, the CICPA adopted the concept of fundamental principles from

western based codes of conduct and uses the similar terms such as integrity,

objectivity/independence, professional competence and due care, confidentiality, and

ethical behaviour in the standard. However, it still contains less explicit information

compared to those of Western countries like US, Australia, UK, etc., and the International

Federation of Accountants (IFAC) Standard Code of Ethics for Professional

Accountants. The implication of less explicit information in the General Standards on

Professional Ethics (GSPE) implies that Chinese auditors may use their personal

judgments more when applying the standard. It would be interesting to find out what

Chinese auditors think about the western based Code?

The core aspect of the GSPE is concerned with audit independence. It requires that

all CPAs (1) should be independent, objective, demonstrate integrity, and be fair in

performing their professional services, (2) not develop too close a relationship with

clients or undertake/accept client employment positions, and (3) ensure that professional

judgments and decisions are not be influenced by others. A major objective of this paper

involves finding out whether Chinese auditors believe the code of professional conduct is

important, concentrating on issues relating to audit independence.

Organizational and personal factors

Shafer (2008) examined ethical climate types in Chinese CPA firms based on the

ethical climate questionnaire developed by Victor and Cullen (1987; 1988) and Cullen et

al. (1993). Their questionnaire focuses on the ethical criteria used for decision-making

i.e., egoism, benevolence, or principle and the locus of analysis. Shafer provides

evidence that an individuals perceptions of ethical climate have a significant effect on


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his/her ethical intentions to commit ethically questionable acts. However, to this time no

previous research has considered Chinese auditors perceptions about their managers

ethical behaviour and their firms system of dealing with identified forms of unethical

practice.

Hunt et al. (1989) defined organisational ethical values asa composite of the

individual ethical values of managers and both the formal and informal policies on the

ethics of the organisation (p. 79). They are regarded asthe most important deterrent to

unethical behaviour (Douglas et al., 2001, p. 105) and play a leading role in corporate

governance (Schwartz et al., 2005). Prior studies show that by setting the ethical tone, top

management helps reduce the ethical conflicts experienced by others within an

organisation, and encourages ethical decision making (Finn et al., 1988).

Hunt et al.s (1989) Corporate Ethical Values scale is based on Chonko and Hunts

(1985) study and considerations ofthe degree to which organisations take an interest in

ethical issues and act in an ethical manner (Hunt et al., 1989, p. 82) and

reward/punishment systems in an organisation. They summarised organizational ethical

values into two dimensions, (1 unethical workplace behaviours and (2) punishment

systems. The first dimension is concerned with the existence of unethical behaviour and

managers concerns about the ethical issues in their organisation. Two questions ask: (1)

managers in my firm often engage in behaviour that I consider to be unethical and, (2) in

order to succeed in my firm, it is often necessary to compromise ones ethics.

The second dimension is concerned with the way top management responds to

unethical acts. It has three items measuring employees perceptions of the punishment

systems for unethical behaviour in their organisations. These are:


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1. Top management in my firm has let it be known that unethical behaviours willnot be tolerated

2. If a manager in my firm is discovered to have engaged in unethical behaviourthat results primarily in personal gain (rather than benefitting the firm), he or

she will be promptly reprimanded

3. If a manager in my firm is discovered to have engaged in unethical behaviourthat results in firm gain (rather than personal gain), he or she will be promptly

reprimanded

This two dimensional model for gauging ethical climate within organisations is adopted

within the framework of the study of Chinese auditors.

3. Research method

Sample

This study uses a survey methodology and was conducted over a three month period

during 2006. According to the Chinese Institute of Certified Public Accountants website,

CICPA has more than 5,600 accounting firm members and over 140,000 individual

members including 69,000 practicing members and over 70,000 non-practicing members

at 31 May 2006. According to the Charter of the Chinese Institute of Certified Public

Accountants (2004), to be a member, it is necessary to pass the National Uniform CPA

Examination and gain official approval for membership (Article 6, see

www.cicpa.org.cn). The practicing members are those who have obtained the CPA

practicing certificate in accordance with the regulations (Article 6).

A sample of Chinese auditors was drawn from local accounting firms in Shenzhen,

Hangzhou, Beijing, and Kunming cities. Shenzhen represents the southern region of


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China. Hangzhou, the capital city of Zhejian Province represents the coastal cities of

China. Beijing, the capital city of China represents the northern cities of China, and

Kunming, the capital city of Yunnan Province represents the inland cities of China.

The survey instrument included a cover letter and a self-administered questionnaire.

The self-administered questionnaire included demographic information about

respondents and questions concerning Chinese auditors beliefs about their Code of

Professional Conduct and their firms ethical cultures. A Chinese expert (who speaks and

reads English and Mandarin) was engaged to translate the scales from English to Chinese.

Another Chinese expert then translated the scales back to English from Chinese to ensure

equivalence in both languages.

The data collection process was supported by the four regional chapters of the

Chinese Institute of Certified Public Accountants (CICPA). Three hundred survey

instruments were distributed by the regional offices in each of the four cities (1200 in

total). A total of 612 responses were received giving a response rate of 51%. Most of the

questionnaires were completed during professional development training sessions

conducted by the Institutes, although a small number were distributed to members

working in local accounting firms in order to bolster response rates. There were no delays

associated with the collection process, although the authors acknowledge there may be

some response bias associated with the completion of questionnaires within accounting

firms (e.g., selective distribution and supervisor pressure). A further examination was

undertaken to the quality of responses in order to check whether there were any

inconsistent answers in relation to the completed instrument. If respondents did not

answer the survey consistently, they were deemed invalid and excluded from this study.


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Results show that 34 respondents did not answer survey questions consistently, reducing

the useable number of respondents to 578, a response rate of 48%.

4. Measures

Chinese Auditors Views about the Code of Professional Conduct

The considerations which guide the development of a measurement instrument for the

Code of Professional Conduct are audit independence and relationships between auditors

and their clients based on the General Standards on Professional Ethics (GSPE). Two

latent constructs are included in the instrument reviewing auditors beliefs about the Code

of Professional Conduct, namely, (1) audit independence and (2) auditor-client

relationships. The first construct includes three statements: (1) to be independent in

performing an audit, (2) to act with integrity and objectivity in performing an audit, and

(3) to resist clients pressures to maintain independence. The second construct has four

statements concerning whether auditors should avoid developing too close a relationship

with their clients: close relationships with a client should be avoided, (2) an employment

offer from a client should be declined (3) avoid dependency on fees from certain clients,

and (4) avoid conflicts of interest with clients. Thus a 7 item two-factor model: audit

independence and audit-client relationship, was applied. Respondents were asked to state

their agreement to these statements on a 7-point Likert scale ranging from strongly

disagree to strongly agree. An internal consistency test of the sample data revealed high

reliability (Cronbachs Alpha = .88). Although Cronbachs Alpha reliability coefficients

confirmed that the scale was internally consistent, it is also necessary to determine if the

scales were clearly differentiable. Construct validity confirms whether an instrument

measures effectively what it is intended to measure. Thus a principal components factor


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analysis with Varimax rotation was undertaken to determine if the items are logically

correlated and load onto identifiable factors.

In applying a reduction process factor eigenvalues > 1.00 were retained, and variable

loadings > .05 were included with respect to each factor. A two factor model explaining

74% of the variance was extracted. The items 4 to 7 loaded significantly on factor 1 (with

58 % of the variance). The items 1 to 3 loaded significantly on factor 2 (with 16% of the

variance). As anticipated, Factor 1 contained items that measure auditor-client

relationships and is named audit-client relationships. Factor 2 contained items which

measure independence in general and is named audit independence.

Firms Ethical Cultures

Hunt et al. (1989) developed a Corporate Ethical Values scale that has been widely

used in prior studies (see Douglas et al., 2001; Singhapakdi et al., 1999; Vitell and

Hidalgo, 2006). These studies used the average score of all five items to measure

perceptions about corporate ethical values. However, in this study the scale was

developed based on two underlying constructs, which if applied may provide better

insights into respondent views about their organisations ethical values. An exploratory

principal component factor analysis was again employed to identify the underlying

factors. Two factors were extracted explaining 71% of the variance. Items 3 to 5 (see

Appendix 1) load significantly on factor 1 (with 39% of the variance) and named

punishment systems. The items 1 and 2 load significantly on factor 2 (with 31% of the

variance) and named unethical workplace behaviours, establishing construct validity.

Respondents were asked to indicate their level of agreement with these 5 items of the

corporate ethical values on a 7-point Likert scale, ranging from strongly disagree (1) to

strongly agree (7). For each respondent, a value for each construct was computed by


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averaging scores of all factor items. A higher score for punishment systems factor

indicates that respondents have stronger beliefs that unethical behaviour will be

addressed within their firms. A higher score for unethical behaviours indicates that

respondents display stronger beliefs that their firm as a whole entertains unethical

practices.

5. Descriptive data and results

There were five hundred and seventy-eight (578) useable responses from auditors

with males 297 (51.4%) and females 281 (49.6%). The majority of respondents (81.5%)

are aged between 20 to 40 years. The majority (65%) have a Bachelors degree. Within

the Chinese context, the auditors occupy various positions broken into five levels

including project managers and departmental managers. Just over half 53% of

respondents have between one to five years auditing work experience, 31% auditors have

more than five but less than ten years work experience, and 89 (14.2%) respondents have

more than ten years work experience. Details of demographic information provided by

respondents are given in Table 1.

The overall mean scores, standard deviations, and one-sample t-test for Chinese

auditors views about the code of professional conduct and their firms ethical values are

listed in Table 2.

Results show that the overall mean scores of Chinese auditors views about the code

of professional conduct for audit independence (mean = 6.37) and audit client

relationships dimensions (mean = 5.89) are significantly higher than the mid-point value

4 at a 1% significance level. Using the one sample t-test, the mean score of audit

independence is significantly higher than audit client relationships at the 1% significance


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level (t = 13.56; p-Value = .000). The mean ratings for audit independence range from

6.11 to 6.53 and for audit client relationships range from 5.80 to 5.96. Thus the answer

for the first research question relating to the importance of the Code of Professional

Conduct is that Chinese auditors believe audit independence and the avoidance of close

client relationships are important, demonstrating a particularly high concern for the

former.

TABLE 1Respondents Background Information

Frequency Percent

Gender: Male

Female

297

281

578

51.4

49.6

100

Age: 20 30 years

31 40

41 50

Above 50

250

222

61

45

578

43.3

38.4

10.6

7.8

100

Education

level:

Accounting Diploma

Bachelors degreeMasters

PhD

Other

164

37425

3

12

578

28.4

64.74.3

0.5

2.1

100

Positions: AuditorSenior auditor

Project manager

Department managers

Partner

Senior partner

26659

132

56

44

21

578

4610.2

22.8

9.7

7.6

3.6

100

Audit

Experience:

0 5 years

6 1011 15

16 20

Over 20

310

18166

10

11

325

53.6

31.311.4

1.7

1.9

100

Table 2 also shows that the overall mean score of Chinese auditors views about

their firms ethical values in the Punishment systems dimension (mean = 5.02) is

significantly higher than the mid-point value 4 at the 1% significance level. However, the

overall mean score of Unethical workplace behaviours (mean = 4.04, SD 0.81) is not


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significantly different from the mid-point value. The results in Table 2 also suggest that

Chinese auditors are somewhat ambivalent in their concerns when it comes to tolerating

unethical behaviour. An independent-samples t-test was conducted to examine gender

differences with respect to views about the professional code ethics and their firms

ethical values. A one way ANOVA was also employed to examine the differences of

auditors views across other demographic variables. Significant outcomes are shown in

Table 3.

TABLE 2

Descriptive and One-sample T-test about Client Relationship and Audit

Independence

Mean* SD t-statistic p-value**

Audit independence 6.37 .84 67.49 .000

1. Need to act with integrity and objectivity 6.53 .852. Be independent in performing an audit 6.46 .933. Resist clients pressure in order to retain independence 6.11 1.09

Audit client relationships 5.89 1.09 41.32 .0001. Avoid an employment offer from clients 5.96 1.282. Avoid financial dependency on certain clients 5.92 1.273. Avoid a conflict of interest with clients 5.85 1.344. Avoid a close relationship with client 5.80 1.33

Unethical workplace practices 4.04 .81 1.31 .190

1. Managers in my firm often engage in unethicalbehaviours

4.35 1.94

2. It is often necessary to compromise ones ethics inorder to succeed in my firm

3.74 1.84

Punishment systems 5.02 1.41 17.31 .000

1. Unethical behaviours that results in personal gain willbe reprimanded 5.26 1.79

2. Unethical behaviours will not be tolerated 5.16 1.723. Unethical behaviours that result in firm gain will be

reprimanded4.64 1.83

*The grand average of individual item scores along a seven-point scale ** Significance with respect to

mid-scale value (4)

Results show that there is no significant difference about auditors views of the

professional code ethics between males and females and across other demographic

variables. Male auditors scored significantly lower than females in terms of their attitudes


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towards unethical workplace practices. Auditors from Shenzhen have a significantly

higher mean score for audit client relationships than auditors from Kunming.

TABLE 3

Multiple Comparisons across Demographics

Mean Std.

Difference Error Sig.

Audit client relationships:

Region: Shenzhen v. Kunming .354* .125 .024

Unethical workplace practices:

Gender: Male v. Female -.407* .143 .047

Punishment systems:

Position: Auditor v. Senior auditors -1.079*

.330 .014

Project Managers v. Senior auditors -1.397** .343 .001

* The mean difference is significant at the .05 level.** The mean difference is significant at the .01 level.

A linear regression with forward stepwise method was performed to explore

relationships between the dependent and independent variables. The dependent variables

include Chinese auditors views about audit independence and audit client relationships,

while the independent variables include their views about unethical workplace behaviours

and extant punishment systems, which are likely to have a bearing on their attitudes to

codes of ethical practice. Demographic factors inserted in the model include: gender,

age, employment status, education, and experience. The interaction between unethical

behaviours and punishment systems (i.e., the product of the two independent variables) is

also used as an independent variable. The results of the regression are shown in Table 4.

The variable relating to unethical work practices is presumed on theoretical grounds to

act as a moderator (Sharma et al., 1981), in that it is likely to influence auditor views

about the punishment systems in use (predictor variable) as well as views about the code


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of practice (criterion variable). The regression results support this assumption in this

instance.

TABLE 4

Results of Regression about Client Relationships and Audit Independence

Std. Beta t-Statistic p-Value

Panel A: dependent variable = audit independence

Independent variables:

Unethical workplace practices .218 5.371 .000

Punishment systems .154 3.795 .000

Age .131 3.225 .001

Model F-value 18.102

Model significance .000

ModelR2

.09

Panel B: dependent variable = client relationships:

Independent variables:

Unethical workplace practices .280 6.871 .000

Interaction climate variable -.146 -3.577 .000

Age -.108 -2.674 .000

Model F-value 20.109

Model significance .000

ModelR2

.10

The results indicate that except for age, demographic variables have no significant

effect on audit independence and audit-client relationships. In Panel A, the results show

that the test variables, views about unethical work practices, punishment systems, and

auditors age are each positively associated with audit views about the importance of

independence issues. Together, these significant variables explain 9% of the variation in

the criterion variable. In Panel B, the results show that the test variable, Unethical

workplace behaviours is positively associated with the criterion variable, while two

factors (the moderating variable interaction between punishment systems and unethical

management practices) each provide a negative influence. The regression model is again

significant and explains 10% of the variation in the criterion variable. Thus this study


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found some evidence that ethical climates in the auditing firms appear to influence

Chinese auditors attitudes towards the importance of the Code of Professional Conduct.

6. Discussion and conclusions

The aim of this study is to examine Chinese auditors perceptions about aspects of a

western based Code of Professional Conduct in use in China and aspects of their firms

ethical culture and the effects of these views of their firms ethical values on their

perceptions of the Code of Professional Conduct. The first research question was

concerned with what Chinese auditors (i.e., members of the Chinese Institute of Certified

Public Accountants) think of the Code of Professional Conduct. It was found that auditors

had significantly strong views about the importance of audit independence and audit

client relationships, consistent with Davison and Changs (2001) findings.

Chinese auditors demonstrated a higher concern about the importance of audit

independence compared to audit client relationships. This might be expected since

Hofstede (1980; 1991) cultural theory suggests that the Chinese emphasize power

distance, collectivism and femininity, along with stronger uncertainty avoidance

tendencies and a long-term orientation. People strong in uncertainty avoidance are

concerned about security in life and are uncomfortable in unstructured situations

(Hofstede, 1980). Thus they adhere to strict laws and rules to avoid such situations.

Prior studies also find that Chinese subjects have stronger views about idealism which

is a belief in moral absolutes or universal truths (Forsyth, 1980). A number of Chinese

studies report that business personnel demonstrate strong idealist beliefs. (Douglas and

Wier, 2005; Redfern, 2005 and Woodbine, Fan and Scully, 2012) These studies suggest

that Chinese auditors will tend to align themselves with stated codes (rules) of practice.


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The beliefs of Chinese people are influenced by Confucianism to varying degrees.

Benevolence and righteousness are the core values of Confucianism (Liu, 1985). The

Confucian golden rule, do not treat others as one would not like to be treated oneself, has

influenced Chinese peoples behaviour for over three thousand years. These cultural

values are consistent with a primary imperative of idealism that ones actions should

avoid harm to others as suggested by Forsyth (1980). In addition, doing the right thing in

order not to lose face is another Chinese cultural value. All these traditional cultural

values can influence Chinese auditors view about audit independence.

The relatively lower mean score for views about client audit relationships can also be

explained in cultural terms. Chinese people form strong interpersonal relationships called

guanxi orientations. For example, auditors will tend to develop close bonds within a

small group setting, where trust will be limited within that relationship. These

orientations are regarded as a product of the Chinese culture (Davies et al., 1995) and Su

et al. (2003, p. 310) also suggest guanxi is culturally rooted, signifying social contracts

and interpersonal exchanges of resources in a collectivistic society. Many westerners

believe that guanxi is related to unethical behaviour like corruption and bribery (Chan et

al., 2002) but from a cultural perspective Chinese people perceive guanxi to be

acceptable (Lovett et al., 1999). Negative and positive aspects of guanxi have been

investigated elsewhere (Fan, Woodbine and Scully, 2012) which identified Chinese

auditors as being more amenable towards forming strong interpersonal relationships.

The second research question examined how ethical climates and personal factors

appear to influence attitudes towards the application of the Code of Professional Conduct.

It was found that opinions about a firms ethical values influence Chinese auditors


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attitudes towards the importance of the Code of Professional Conduct. The more Chinese

auditors agree with the notion that their workplaces are somewhat unethical and have

punishment processes in place, the more they agree with the need to adhere to the Codes

of Conduct in relation to issues of independence as a matter of principle.

The position with respect to the importance of audit client relationships however is

not as clear. Again, the more auditors agreed with the notion that unethical practices exist

within their firms, the more they were inclined to indicate they believed in the importance

of adhering to related codes of practice. However, the influence of the interacting

variable (joint consideration of both unethical work practices and associated punishment

systems), operates to offset the positive impact of the variable relating to existence of

unethical work practices when identifying concern about the need to observe audit client

relationships (dependent variable). It is clear that this factor reduces respect for adherence

to this code and may explain the ambivalence of auditors to the existence of unethical

work practices. This issue deserves further examination as the outcome may suggest that

an important facet of audit conduct is not fully appreciated by practitioners. That is,

although auditors value the importance of Codes of conduct, the existence of

questionable work practices (especially relating to audit client relations) significantly

tempers their views about their application within the workplace.

The negative influence of age on attitudes towards the need to adhere to audit client

relationship codes suggests that older (and probably more senior) auditors are less

inclined to agree that audit client relationship rules need to be adhered to. Perhaps age

(reflected in seniority and employment level) is also a factor encouraging ambivalence

towards the existence of unethical practices when it comes to dealing with audit clients.


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This study confirms that Chinese auditors are more concerned about the relevance of

codes of professional conduct (as they relate to issues of independence) when they

identify strongly with workplaces that display higher levels of unethical work practices

and the existence of associated punishment systems. In this context their responses are

reactive, in the sense that they are aware that such practices exist and that appropriate

punishment systems need to be applied in order to encourage adherence to professional

codes of practice.

The results of this study should be considered in the light of the inherent limitations of

a survey research. Generalisability is limited because the sample may not be fully

representative of certified Chinese auditors due to the data collection process. In addition,

all respondents were from local Chinese accounting firms although this sector employs

the majority of CPAs. It could be argued that auditors view about the Code of

Professional Conduct is different between local accounting firms and international

accounting firms. Furthermore, this study is not a comparative study. The survey

instrument for the Code of Professional Conduct was developed by the authors and needs

further validation. The results of this study raise questions for further research. For

example, examining the relationships between auditors ethical decision-making and the

Code of Professional Conduct and firms ethical culture might be one area of interest.

Another area would be to re-examine the two-factor model of the Code of Professional

Conduct scale by undertaking a validation study in other locations.


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Appendix 1: Corporate ethical values scale (CEV) *

1. Managers in my firm often engage in behaviours that I consider to be unethical2. In order to succeed in my firm, it is often necessary to compromise ones ethics3. Top management in my firm has let it be known that unethical behaviours will not

be tolerated

4. If a manager in my firm is discovered to have engaged in unethical behaviour thatresults primarily in personal gain (rather than firm gain), he or she will be

promptly reprimanded

5. If a manager in my firm is discovered to have engaged in unethical behaviour thatresults in firm gain (rather than personal gain), he or she will be promptly

reprimanded

* Measured on a seven-point (7) response scale from Strongly disagree (1) to Strongly agree (7).

Source: Hunt et al, (1989)


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