Our research tidbits this week covers ethics in accounting from a wide perspective, including the role of AI, tax software, governing bodies and the notion of actuarial fairness.

The ethical implications of using artificial intelligence in auditing
Accounting firms are reporting the use of Artificial Intelligence (AI) in their auditing and advisory functions, citing benefits such as time savings, faster data analysis, increased levels of accuracy, more in-depth insight into business processes, and enhanced client service.

AI, an emerging technology that aims to mimic the cognitive skills and judgment of humans, promises competitive advantages to the adopter. As a result, all the Big 4 firms are reporting its use and their plans to continue with this innovation in areas such as audit planning risk assessments, tests of transactions, analytics, and the preparation of audit work-papers, among other uses.

As the uses and benefits of AI continue to emerge within the auditing profession, there is a gradual awakening to the fact that unintended consequences may also arise. Thus, the authors heed to the call of numerous researchers to not only explore the benefits of AI but also investigate the ethical implications of the use of this emerging technology. By combining two futuristic ethical frameworks, the authors forecast the ethical implications of the use of AI in auditing, given its inherent features, nature, and intended functions.

The authors provide a conceptual analysis of the practical ethical and social issues surrounding AI, using past studies as well as inferences based on the reported use of the technology by auditing firms. Beyond the exploration of these issues, the authors also discuss the responsibility for the policy and governance of emerging technology.

Ivy Munoko, Helen L. Brown-Liburd & Miklos Vasarhelyi. 2020. The Ethical Implications of Using Artificial Intelligence in Auditing.

Journal of Business Ethics, 167(2), 209–234.

Are people more willing to lie to a computer or a human in tax compliance?
Individuals are increasingly switching from hiring tax professionals to prepare their tax returns to self-filing with tax software, yet there is little research about how interacting with tax software influences compliance decisions.

Using an experiment, the authors examine the effect of preparation method, tax software versus tax professional, on willingness to lie. Results from a structural equation model based on data collected from 211 actual taxpayers confirm the hypotheses and show individuals are more willing to lie to tax software than a human tax professional.

The results also suggest this effect is jointly mediated by perceptions of social presence and the perceived detectability of the lie. Beyond the practical implications for tax enforcement, the findings broadly contribute to accounting and other literatures by examining the theoretical mechanisms that explain why individuals interact differently with computers versus humans. The authors also extend prior research on interactions between humans and computers by examining economically motivated lies.

Ethan LaMothe & Donna Bobek. 2020. Are Individuals More Willing to Lie to a Computer or a Human? Evidence from a Tax Compliance Setting.

Journal of Business Ethics, 167(2), 157–180.

Enforcement of accounting ethics in Puerto Rico
This paper examines ethical violations committed by Certified Public Accountants (CPAs) in Puerto Rico (PR) in the 2002–2010 period and the related disciplinary actions taken by the local regulatory bodies.

The institutional settings for the accounting profession in PR are different from those of the United States. Ethical complaints are investigated by the PR Society of CPAs and evaluated based on the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA), although most CPAs in PR are not affiliated with the AICPA. This study is based on data provided by the PR Society of CPAs that is not publicly available. The authors examine the association between the occurrence of the ethical violations and certain variables such as gender, type of practice performed by the CPA, and whether the CPA participates in a peer review program.

Results of a multiple correspondence analysis (MCA) suggest that not being a member of the AICPA, practicing as a sole practitioner, and not participating in a peer review program seem to be more associated with the occurrences of ethical violations by CPAs. The authors compare their findings with prior research on ethical infractions committed by CPAs in the United States and find some differences attributable to the institutional settings in PR. Overall, the results suggest the importance of codes of conduct in the accounting profession and compliance with such ethical guidelines by practicing accountants.

Rogelio J. Cardona, Zabihollah Rezaee, Wanda Rivera-Ortiz & José C. Vega-Vilca. 2020. Regulatory Enforcement of Accounting Ethics in Puerto Rico.

Journal of Business Ethics, 167(1), 63–76.

Fairness in uncertainty: Some limits and misinterpretations of actuarial fairness
The recent proliferation of new data and technologies enables increasingly finer personalisation of products and prices in every domain. In insurance, this revives and enlarges old debates around fairness that have never been completely settled.

The authors will argue that the commonly accepted “actuarial fairness” as based on the “individual cost of risk” derives in fact from a conflation: while it indicates the average cost for a group of insureds from the perspective of an insurance company—and is therefore sound from a business profitability viewpoint—it is arguable whether it represents the “fair price” for the individual insured. The authors first show in a historical perspective the intertwinement of conceptions of fairness with knowledge, in order to point to the alternative to actuarial fairness for insurance.

The authors then describe the intrinsic difference between the insured and the insurer (or portfolio manager) when underwriting an insurance contract. Finally, the authors build on this distinction to discuss the meaning of fairness in insurance prices. The hope is to re-center the debate around insurance fairness on its underlying solidarity mechanisms rather than technical and actuarial considerations.

Sylvestre Frezal & Laurence Barry. 2020. Fairness in Uncertainty: Some Limits and Misinterpretations of Actuarial Fairness.

Journal of Business Ethics, 167(1), 127–136.