Internal control environment forces and financial reporting decisions made by financial accountants

The accounting profession believes the reliability of financial reporting is affected by an organization's internal control the foundation of which is the control environment. Despite attempts by organizations to create ethical environments, financial accountants are sometimes confronted with ethical dilemmas that may affect financial reporting decisions.; This researcher examined the effect of control environment forces--the tone at the top, codes of conduct, and short-term targets--on financial reporting decisions. Other variables, including management level, job tenure, firm size, firm ownership, age, education, and gender, were also examined. The Internal Control-Integrated Framework offered by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) provided the theoretical framework. Lewin's Force Field Analysis and Ferrell and Gresham's Contingency Framework for Understanding Ethical Decision Making each provided conceptual rationale elements.; A questionnaire was mailed to 400 CPAs. Part One of the questionnaire was developed by the researcher based on the COSO framework and consisted of questions about perceived integrity and ethical values of managers within an organization's control environment. Part Two of the questionnaire consisted of accounting dilemmas, based on actual Security and Exchange Commission cases, that provide information about financial reporting dilemmas. The questionnaire was validated by a pilot study of 150 CPAs.; Hypotheses were tested through Pearson Product Moment correlations and multiple regression analysis. Respondents who perceive a tone at the top in their organization that fosters ethical behavior were more likely to fairly report financial information. Codes of conduct and pressure for short-term performance had no significant effect on financial reporting decisions. Respondents generally perceived a tone at the top in their organizations that is strong in fostering ethical behavior. Respondents also perceived moderate codes of conduct and moderate pressure to achieve short-term performance targets. Strong codes of conduct and more pressure for short-term targets were more likely to be perceived by respondents in large and publicly held organizations. Overall, the results of this research indicate the importance of the integrity and ethical values of managers in influencing employees when making decisions, as well as the importance of incorporated ethical issues in business courses.