The Impact of Hierarchy of Information and Ethical Predisposition on Aggressive Reporting

Main Article Content

Lim Ying Zhee
Anna Azriati Che Azmi


Research aim: The objective of this study is to examine whether ethical predisposition and hierarchy of information can explain the aggressive reporting by managers.
Design/methodology/approach: A 3×2 between-subjects experiment manipulating the hierarchy of information (principle, principle + criteria, and principle + criteria + indicators) and ethical predisposition (utilitarianism + formalistic) was conducted to examine their joint effect on managers’ decision making.
Research Findings: Statistical results revealed that ethical predisposition influenced aggressive reporting in the presence of more levels in the hierarchy of information in accounting standards.
Theoretical contribution/ Originality: This study proposes that in drafting accounting standards, standard setters should strike a balance in how much information is to be provided. Our study also provides evidence that accounting standards should not be too general or too specific. Moving towards either one of these two extremes could lead to undesired reporting patterns by accountants.
Practitioner/ Policy implication: The findings of the study provide useful insights into how individuals’ attributes affect the interpretation of the different levels of hierarchy of information in accounting standards. The findings are beneficial for standard setters in drafting accounting standards.
Research limitation: Owing to factors such as time limit and appropriate length of the instrument, the study had to exclude some specificity of the standard, such as definitions and descriptions of the standard, from the instrument. It is possible that the incomplete information might have influenced the participants in making their judgment. Besides, since accounting students who returned from practical training were used as proxies for chief finance officers (CFOs), the viewpoints or opinions on how the decision was made might not be in line with actual practice because they might not serve in a decision making capacity during the practical training. 
Keywords: Aggressive Reporting, Formalistic, Information Hierarchy, Utilitarian
Type of article: Research Paper
JEL Classification: M3


Download data is not yet available.

Article Details

Research Paper


Agoglia, C.P., Doupnik, T.S., & Tsakumis, G.T. (2011). Principles-based versus rules-based accounting standards: The influence of standard precision and audit committee strength on financial reporting decisions. Accounting Review, 86(3), 747–767.

Alexander, D. (1999). A benchmark for the adequacy of published financial statements. Accounting and Business Research, 29(3), 239-253.

Armstrong, M.B., Ketz, J.E., & Owsen, D. (2003). Ethics education in accounting: Moving toward ethical motivation and ethical behavior. Journal of Accounting Education, 21(1), 1-16.

Backof, A.G., Bamber, E.M., & Carpenter, T. D. (2016). Do auditor judgment frameworks help in constraining aggressive reporting? Evidence under more precise and less precise accounting standards. Accounting, Organizations and Society, 51, 1-11.

Bagley, P.L., Dalton, D., & Ortegren, M. (2012). The factors that affect accountants’ decisions to seek careers with big 4 versus non-big 4 accounting firms. Accounting Horizons, 26(2), 239-264.

Baker, C.R., Biondi, Y., & Zhang, Q. (2010). Disharmony in international accounting standards setting: The Chinese approach to accounting for business combinations. Critical Perspectives on Accounting, 21(2), 107-117.

Bauer, T.D., Bucaro, A.C., & Estep, C. (2020). The Unintended Consequences of Material Weakness Reporting on Auditors’ Acceptance of Aggressive Client Reporting. The Accounting Review, 95(4), 51-72.

Bennett, B., Bradbury, M., & Prangnell, H. (2006). Rules, principles and judgments in accounting standards. Abacus, 42(2), 189-204.

Bhimani, A. (2008). The role of a crisis in reshaping the role of accounting. Journal of Accounting and Public Policy, 27(6), 444-454.

Biondi, Y., & Zhang, Q. (2007). Accounting for the Chinese context: a comparative analysis of international and Chinese accounting standards focusing on business combinations. Socio-Economic Review, 5(4), 695-724.

Brady, F.N., & Wheeler, G.E. (1996). An empirical study of ethical predispositions. Journal of Business Ethics, 15(9), 927-940.

Brochet, F., Jagolinzer, A.D., & Riedl, E.J. (2013). Mandatory IFRS adoption and financial statement comparability. Contemporary Accounting Research, 30(4), 1373-1400.

Brown, K.W., & Ryan, R.M. (2003). The benefits of being present: mindfulness and its role in psychological well-being. Journal of Personality and Social Psychology, 84(4), 822-848.

Brown, H.L., & Wright, A.M. (2008). Negotiation research in auditing. Accounting Horizons, 22(1), 91-109.

Cameran, M., Campa, D., & Pettinicchio, A. (2014). IFRS adoption among private companies: Impact on earnings quality. Journal of Accounting, Auditing & Finance, 29(3), 278-305.

Capps, G., Koonce, L., & White, B.J. (2017). Example‐Based Reasoning and Fact‐Weighting Guidance in Accounting Standards. Contemporary Accounting Research, 34(1), 582-600.

Carlson, L.E., & Brown, K.W. (2005). Validation of the Mindful Attention Awareness Scale in a cancer population. Journal of Psychosomatic Research, 58(1), 29-33.

Carpenter, T.D., & Reimers, J.L. (2005). Unethical and fraudulent financial reporting: Applying the theory of planned behavior. Journal of Business Ethics, 60(2), 115-129.

Chang, C.J., & Hwang, N.C. (2003). The impact of retention incentives and client business risks on auditors’ decisions involving aggressive reporting practices. Auditing: A Journal of Practice & Theory, 22(2), 207-218.

Chen, Q., Hemmer, T., & Zhang, Y. (2007). On the relation between conservatism inaccounting standards and incentives for earnings management. Journal of Accounting Research, 45(3), 541-565.

Chen, C.C., Schwartz, Z., & Yu, X.J. (2015). On the ‘students as surrogates’ research conundrum: Insights from statistical reasoning in revenue management. Journal of Revenue and Pricing Management, 14(4), 262-275.

Clor-Proell, S., & Nelson, M.W. (2007). Accounting standards, implementation guidance, and example-based reasoning. Journal of Accounting Research, 45(4), 699–730.

Cuccia, A.D., Hackenbrack, K., & Nelson, M.W. (1995). The ability of professional standards to mitigate aggressive reporting. The Accounting Review, 70(2), 227-248.

Donelson, D.C., McInnis, J.M., & Mergenthaler, R.D. (2012). Rules-based accounting standards and litigation. The Accounting Review, 87(4), 1247–1279.

Dong, R., Lu, T., Hu, Q., & Ni, S. (2021). The effect of formalism on unethical decision making: The mediating effect of moral disengagement and moderating effect of moral attentiveness. Business Ethics: A European Review, 30(1), 127-142.

Fang, L., Pittman, J., Zhang, Y., & Zhao, Y. (2018). Accounting standard precision, corporate governance, and accounting restatements. SSRN Electronic Journal. Retrieved from

Franceschini, F., Galetto, M., & Maisano, D. (2007). Management by measurement: Designing key indicators and performance measurement systems. Heidelberg: Springer Science & Business Media.

Frank, M.M., Lynch, L.J., & Rego, S.O. (2009). Tax reporting aggressiveness and its relation to aggressive financial reporting. The Accounting Review, 84(2), 467-496.

Fornaro, J.M., & Huang, H.-W. (2012). Further evidence of earnings management and opportunistic behavior with principles-based accounting standards: The case of conditional asset retirement obligations. Journal of Accounting & Public Policy, 31(2), 204–225.

Gold, A., Heilmann, M., Pott, C., & Rematzki, J. (2020). Do key audit matters impact financial reporting behavior?. International Journal of Auditing, 24(2), 232-244.

Ishida, C., Chang, W., & Taylor, S. (2016). Moral intensity, moral awareness and ethical predispositions: The case of insurance fraud. Journal of Financial Services Marketing, 21, 4-18.

Jamal, K., & Tan, H.T. (2010). Joint effects of principles-based versus rules-based standards and auditor type in constraining financial managers’ aggressive reporting. The Accounting Review, 85(4), 1325-1346.

Juslin, P., & Olsson, H. (2004). Note on the rationality of rule-based versus exemplar based processing in human judgment. Scandinavian Journal of Psychology, 45(1), 37-47.

Kang, G., & Lin, J.W. (2011). Effects of the type of accounting standards and motivation on financial reporting decision. Journal of Accounting, Business & Management, 18(2), pp. 84-104

Lakey, C.E., Campbell, W. K., Brown, K. W., & Goodie, A.S. (2007). Dispositional mindfulness as a predictor of the severity of gambling outcomes. Personality and Individual Differences, 43(7), 1698-1710.

Libby, R., Bloomfield, R., & Nelson, M.W. (2002). Experimental research in financial accounting. Accounting, Organizations and Society, 27(8), 775-810.

Libby, R., & Luft, J. (1993). Determinants of judgment performance in accounting settings: Ability, knowledge, motivation, and environment. Accounting, Organizations and Society, 18(5), 425-450.

Lim, Y.Z., Azmi, A., Devi, S.S., & Mahzan, N. (2017). Implementation Guidance for Standards and Revenue Trend in Aggressive Reporting. The International Journal of Accounting, 52(4), 342-353.

Lin, S., Riccardi, W., & Wang, C. (2012). Does accounting quality change following a switch from U.S. GAAP to IFRS? Evidence from Germany. Journal of Accounting and Public Policy, 31(6), 641-657.

MacKillop, J., & Anderson, E.J. (2007). Further psychometric validation of the mindful attention awareness scale (MAAS). Journal of Psychopathology and Behavioral Assessment, 29(4), 289-293.

Ministry of Education. (2019). 2019 Quick facts Malaysia educational statistics. Malaysia Ministry of Education.

Mohamed Saat, M., Porter, S., & Woodbine, G. (2012). A longitudinal study of accounting students’ ethical judgement making ability. Accounting Education, 21(3), 215-229.

Morais, A.I. (2020). Are changes in international accounting standards making them more complex?. Accounting Forum, 44(1), 35-63.

Mortensen, T., Fisher, R., & Wines, G. (2012). Students as surrogates for practicing accountants: Further evidence. Accounting Forum, 36(4), 251-265.

Mulder, L.B., Jordan, J., & Rink, F. (2015). The effect of specific and general rules on ethical decisions. Organizational Behavior and Human Decision Processes, 126, 115-129.

Nalukenge, I., Nkundabanyanga, S.K., & Ntayi, J.M. (2018). Corporate governance, ethics, internal controls and compliance with IFRS. Journal of Financial Reporting and Accounting, 16(4), 764-786.

Namkoong, G., Boyle, T., El-Kassaby, Y.A., Palmberg-Lerche, C., Eriksson, G., Gregorius, H., & Prabhu, R. (2002). Criteria and indicators for sustainable forest management: Assessment and monitoring of generic variation. Working Paper. Forestry Department. Food and Agriculture Organization of the United Nations. Rome, Italy.

Nobes, C.W. (2005). Rules-based standards and the lack of principles in accounting. Accounting Horizons, 19(1), 25-34.

Pan, P., & Patel, C. (2018). The influence of native versus foreign language on Chinese subjects’ aggressive financial reporting judgments. Journal of Business Ethics, 150(3), 863-878.

Pearsall, M.J., & Ellis, A.P. (2011). Thick as thieves: the effects of ethical orientation and psychological safety on unethical team behaviour. Journal of Applied Psychology, 96(2), 401.

Raglan, G.B., & Schulkin, J. (2014). Decision Making, Mindfulness, and Mood: How Mindfulness Techniques can Reduce the Impact of Biases and Heuristics through Improved Decision Making and Positive Affect. Journal of Depression and Anxiety, 4(1), 168-175.

Rest, J., Narvaez, D., Bebeau, M.J., & Thoma, S.J. (1999). Postconventional moral thinking: A neo-Kohlbergian Approach. Mahwah, NJ: Lawrence Erlbaum.

Rest, J.R. (1986). Moral development: advances in research and theory. New York: Praeger.

Reynolds, S.J. (2006). Moral awareness and ethical predispositions: investigating the role of individual differences in the recognition of moral issues. Journal of Applied Psychology, 91(1), 233.

Reynolds, S.J., & Ceranic, T.L. (2007). The effects of moral judgment and moral identity on moral behavior: an empirical examination of the moral individual. Journal of Applied Psychology, 92(6), 1610.

Rose, J.M. (2007). Attention to evidence of aggressive financial reporting and intentional misstatement judgments: Effects of experience and trust. Behavioral Research in Accounting, 19(1), 215-229.

Ruedy, N.E., & Schweitzer, M.E. (2010). In the moment: The effect of mindfulness on ethical decision making. Journal of Business Ethics, 95(1), 73-87.

Satava, D., Caldwell, C., & Richards, L. (2006). Ethics and the auditing culture: Rethinking the foundation of accounting and auditing. Journal of Business Ethics, 64(3), 271-284.

Schipper, K. (2003). Principles-based accounting standards. Accounting Horizons, 17(1), 61–72.

Schwartz, S. (1996). Value Priorities and Behavior: Applying a Theory of Integrated Value Systems. Edt.

Sligman-James, C., Olson-Mark, M., and Zanna, P. The Psychology of Values, The Ontorio Symposium, Vol. 8.

SEC. (2003). Study pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the adoption by the United States financial reporting system of a principles-based accounting system. U.S. Securities and Exchange Commission

Shakespeare, C. (2020). Reporting matters: the real effects of financial reporting on investing and financing decisions. Accounting and Business Research, 50(5), 425-442.

Shawver, T.J., & Clements, L.H. (2015). Are there gender differences when professional accountants evaluate moral intensity for earnings management?. Journal of Business Ethics, 131(3), 557-566.

Stenka, R., & Taylor, P. (2010). Setting UK standards on the concept of control: an analysis of lobbying behaviour. Accounting and Business Research, 40(2), 109-130.

Tan, H.-C., & Jamal, K. (2006). Effect of accounting discretion on ability of managers to smooth earnings. Journal of Accounting and Public Policy, 25(5), 554-573.

Treviño, L. K., Weaver, G. R., & Reynolds, S. J. (2006). Behavioral ethics in organizations: A review. Journal of management, 32(6), 951-990.

Trisanti, T. (2019). Discretionary Accounting Choice and Management Opportunistic Behavior to Manage Income. Jurnal Akuntansi dan Keuangan, 21(1), 21-29.

Valentine, S., & Godkin, L. (2019). Moral intensity, ethical decision making, and whistleblowing intention. Journal of Business Research, 98, 277-288.

van Rinsum, M., Maas, V.S., & Stolker, D. (2018). Disclosure Checklists and Auditors’ Judgments of Aggressive Accounting. European Accounting Review, 27(2), 383-399.

Walters-York, M., & Curatola, A.P. (2000). Theoretical reflections on the use of students as surrogate subjects in behavioral experimentation. Advances in Accounting Behavioral Research, 3(3), 243-263.

Wang, K.J. (2010). Negotiating a fair value under accounting uncertainty: A laboratory experiment. Behavioral Research in Accounting, 22(1), 109-134.

Wang, Y., & Ruhe, G. (2007). The cognitive process of decision making. International Journal of Cognitive Informatics and Natural Intelligence (IJCINI), 1(2), 73-85.

Watson, G.W., Berkley, R.A., & Papamarcos, S.D. (2009). Ambiguous allure: The value–pragmatics model of ethical decision making. Business and Society Review, 114(1), 1-29.

Wiltermuth, S. S., Bennett, V.M., & Pierce, L. (2013). Doing as they would do: How the perceived ethical preferences of third-party beneficiaries impact ethical decision-making. Organizational Behavior and Human Decision Processes, 122(2), 280-290.

Women, U. N. (2013). A Transformative Stand-Alone Goal on Achieving Gender Equality. Women’s Rights and Women’s Empowerment: Imperatives and Key Components, UN Women, New York.

Xu, Z.X., & Ma, H.K. (2016). How can a deontological decision lead to moral behavior? The moderating role of moral identity. Journal of Business Ethics, 137(3), 537-549.

Young, D. (2021). How Social Norms and Social Identification Constrain Aggressive Reporting Behavior. The Accounting Review, 96(3), 449-478.