The impact of corporate ethical values on perceptions of earnings management

Earnings management behavior has been a concern in the accounting profession for a long time. This study surveyed 583 certified public accountants (CPAs) in public accounting, industry and academia to determine if there is a link between corporate ethical values and perception of earnings management. Selected earnings management scenarios were mailed to the respondents before high‐profile bankruptcies became public information. The results indicated that CPAs employed in organizations with high (low) ethical standards viewed earnings management activities as more unethical (ethical). Within‐group analyses of the respondents also found significant differences on the perception of corporate ethical values based on gender, age, job title and other demographic factors. The results indicated that there were early warning signals in the accounting profession regarding ethical values and earnings management. The results were particularly alarming among CPAs employed in industry who reported lower perception of their corporate ethical values.