The Effect of Ethical Leadership, Internal Audit Function and Moral Intensity on Financial Reporting Decisions

Abstract

Ethical decision making cannot be done in isolation, and some conditional factors such as field of the work, organizational culture and job characteristics have influences on it. The ambitious decisions lead to misleading of financial reporting role. This study investigates the effects of ethical leadership, internal audit function and moral intensity on financial reporting decisions. This study is a descriptive survey research. The statistical society of the study is divided into two groups: the accountants of the firms listed in the Tehran Stock Exchange (TSE) and the accountants of the other firms selected form Shiraz Industrial Township. Data analysis is done utilizing ANCOVA, Vari-max and Sobel test. The findings show that ethical leadership and internal audit function interact and influence on doing non-ethical practice, jointly. The results also indicate that in comparison to the other situations, in the situation of weak ethical leadership and strong internal audit function, the probability of doing non-ethical practice is less. Moral intensity has a moderating effect on the relationship, too. Moral intensity has an interaction with ethical leadership and internal audit function, preventing a non-ethical practice of accountants.

Keywords

• ethics in accounting
• moral intensity
• ethical leadership
• internal audit function