Journal of Forensic Accounting Research American Accounting Association

Vol. 2, No. 1 DOI: 10.2308/jfar-51931

2017
pp. A71–A90

Does Viewing Sacrificed Integrity as a

Negotiable Cost Promote Acceptance of
Fraud?
Joseph C. Ugrin
Kansas State University
Marcus Dean Odom
Southern Illinois University Carbondale

ABSTRACT: The accounting profession relies heavily on professional integrity to control

fraud and abuse; yet we know little about the relationship between integrity and fraud. We
propose that integrity influences accountants’ attitudes about fraud through rational
calculations of risk and reward, where accountants weigh the loss of integrity against
potential returns. We adapt and test a model that incorporates outcome bias and framing
in an experiment with student participants (n ¼ 86). When confronted with financial
statement fraud, the likely outcome of the fraud influences attitudes about integrity, and
integrity mediates the effect of the likely outcome of the fraud on attitudes toward the
fraud. This finding suggests that attitudes about integrity partially determine attitudes
about fraud. However, we argue that accountants’ attitudes about integrity are
corruptible, meaning the profession cannot rely on self-regulation alone to control fraud
and abuse.
Keywords: integrity; financial statement fraud; framing; outcome bias.

INTRODUCTION

F
inancial statement fraud is an intentional act to misstate financial data. It is a pervasive
problem with serious effects on global economies. According to the Association of Certified
Fraud Examiners’ Report to the Nations on Occupational Fraud and Abuse (ACFE 2016),
financial statement fraud makes up 9 percent of all frauds, costs the global economy billions
annually, and amounts to nearly $1 million per occurrence. Legislators have passed regulations,
such as the Securities and Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, in attempts

Thank you to the reviewers and discussant at the 2015 American Accounting Association Annual Meeting, where this
research was presented. Thank you to the editor, associate editor, and reviewers for their thoughtful guidance. Finally,
thank you to the Pontikes Center for Management of Information at Southern Illinois University Carbondale for a grant
award that helped us produce this research.
Editor’s note: Accepted by Charles D. Bailey.

Submitted: September 2015

Accepted: September 2017
Published Online: October 2017

A71
Ugrin and Odom A72

to reduce financial statement fraud by increasing the chance of detection and providing guidance
for sanctions against those convicted of fraud. However, a recent study found that over a two-year
period, only 12 percent of those who engaged in financial statement fraud were convicted and the
penalties tend to be small (Beasley, Carcello, Hermanson, and Neal 2010). In addition, many
frauds go unreported. Regulators frequently rely on internal investigations (Hilzenrath 2011) and
internal auditors to detect fraud (Guthrie, Norman, and Rose 2012), even though firms are
reluctant to disclose internal findings due to potential reputational and legal costs (ACFE 2016).
Collectively, these findings suggest that a financial statement fraudster is likely to avoid formal
consequences.
The accounting profession relies heavily on accountants’ professional integrity as a means of
self-regulating fraud. The American Institute of Certified Public Accountants (AICPA) defines
integrity in its Code of Professional Conduct as part of an accountant’s moral fiber that requires a
member be ‘‘honest and candid’’ and ‘‘not subordinated to personal and professional gain’’ (AICPA
2016, 5). The AICPA recognizes the importance of integrity in its Code of Professional Conduct by
stating:
To maintain and broaden public confidence, members should perform all professional
responsibilities with the highest sense of integrity. Integrity is an element of character
fundamental to professional recognition. It is the quality from which the public trust
derives and the benchmark against which a member must ultimately test all decisions.
(AICPA 2016, 5)
The Code uses the word integrity 120 times, indicating the profession places a high value on
it. All-out reliance on integrity, however, would require that accountants be uniquely incorruptible
and devoid of dishonesty.
We are less optimistic that a code of conduct can adequately dissuade unethical behavior and
suggest that accountants behave as ordinary people when integrity is concerned. We propose that
accountants voluntarily expend integrity in a rational calculation of risk and reward. They treat
integrity, an intrinsic factor, similarly to extrinsic factors (e.g., money). We adapt a model from Lipe
(1993) for use in an ethical (financial statement fraud) context. The model explains the effects of
outcome bias and framing on judgments. We test our adapted model on future accountants: upper-
division undergraduate accounting students and Master’s of Accountancy students. In our
experiment, participants consider a financial statement fraud, its likely outcome (a potential
financial bonus), and their loss of integrity if they commit fraud. The participants then consider
integrity in terms of either a cost or loss frame and formulate an attitude about the fraud. A cost is
something given to get something else, whereas a loss is given with no likely return. The framing of
integrity as a cost or a loss is metaphorically consistent with Kahneman and Tversky (1984) and
Tversky and Kahneman (1981), who propose that people consider the factors risked when making
decisions and choices in the terms of a cost or loss frame.
The results show that the expected outcome (the financial reward) influences participants’
framing of integrity, which mediates the relationship between the attitudes and outcome.
Participants presented with a financial statement fraud that results in a bonus for the fraudster tend
to frame loss of integrity as a cost and have a more positive attitude about committing financial
statement fraud themselves. When the fraudster does not receive a bonus, participants frame
integrity as a loss and have a less positive attitude toward committing financial statement fraud.
The findings apply to future accounting professionals. The results suggest that when money is
at stake, future accountants are corruptible, biased by outcomes, and willing to bargain their

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integrity for a reward. The results are concerning since the bedrocks of the accounting profession
are integrity and trust, and accountants are expected to be incorruptible. The findings should also
be of interest to the academic research community, as they suggest that outcome bias and framing
effects apply to the risk of assets other than money. In the judgment and decision-making process,
people may treat the loss of intrinsic factors, such as integrity, much as they would treat extrinsic
factors.

BACKGROUND AND HYPOTHESIS DEVELOPMENT

Financial Statement Fraud
Financial statement fraud is an intentional scheme to report financial data inaccurately for
personal or organizational gain. Researchers have found that financial incentives result in a
greater propensity for business leaders to commit financial statement fraud. For example,
researchers have linked financial statement fraud to bonus contracts (Healy 1985; Dechow, Sloan,
and Sweeney 1996) and equity-based compensation (Bar-Gill and Bebchuk 2003a, 2003b;
Bebchuk and Fried 2003; Goldman and Slezak 2006; Johnson, Ryan, and Tian 2009; Robison and
Santore 2011), suggesting a link between incentives and the propensity to commit financial
statement fraud among corporate executives. However, these studies do not examine how
individuals rationalize fraud and formulate their decision to commit fraud. Recent literature has
started to address that concern.

The Formulation of Attitudes about Committing Financial Statement Fraud

Murphy and Dacin (2011) offer a theoretical model of the ‘‘psychological pathways to fraud.’’
Their model suggests that individuals start formulating their decisions by first evaluating whether
an action is indeed fraudulent. Individuals will almost certainly engage in fraud if opportunity and
motivation exist and the individual does not identify the action to be fraudulent. On the other hand,
individuals rely on their ‘‘affect-laden moral intuition’’ if they recognize the action to be fraudulent;
that is, the individual will typically engage in the behavior if his or her intuition indicates it is
acceptable. If the individual’s intuition is conflicting, then he or she will move on to cost-benefit-
based reasoning to weigh benefits, like incentives, against consequences.
A focused line of research investigates cost-benefit-based reasoning. Carpenter and Reimers
(2005) use an experimental approach to examine how attitudes, subjective norms, and perceived
behavioral controls lead to intentions to commit financial statement fraud. They find that attitudes
influence intentions to commit financial statement fraud; their model explains 72 percent of the
variation in participants’ intentions to commit fraud. Ajzen and Fishbein (1980, 6) define an attitude
as ‘‘a person’s general feeling of favorableness or unfavorableness for that behavior.’’ They
characterize attitudes toward an act or behavior as the product of an individual’s feelings and
beliefs about the costs and benefits of the act. In general, attitudes are favorable toward behaviors
that result in advantageous outcomes for the perpetrator. Attitudes reflect the beliefs developed
from observations of past outcomes of one’s own or another’s behavior; past outcomes influence
expectations of future outcomes (Lipe 1993).
Other studies extend Carpenter and Reimers (2005) to explain how anticipated consequences
influence attitudes about fraud. Those studies are based on rational decision-making theories and
evidence from research, which suggest that when confronted with opportunities to commit fraud,
individuals weigh the potential costs and rewards of opportunities (Beccaria 1963; Williams and

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Hawkins 1986; Klepper and Nagin 1989; Simpson and Koper 1992; Blair and Stout 2001; Tyler and
Blader 2005; Ugrin and Odom 2010; Ugrin, Kovar, and Pearson 2013; Ugrin, Odom, and Ott
2014). In the accounting context, Ugrin et al. (2014) tested whether accounting students and
professional accountants were more likely to commit financial statement fraud if an altruistic
incentive was attached to the fraud, finding that fraud was more easily justified if an altruistic-based
intrinsic reward was present. Another accounting-related study showing that individuals consider
the negative consequences of committing financial statement fraud tested the effects of Sections
906 and 404 of the Sarbanes-Oxley Act of 2002, which intensify the severity of the potential
consequences and increase the likelihood that an audit will detect it (Ugrin and Odom 2010). The
findings show that potential consequences can alter accountants’ attitudes about committing
financial statement fraud. Research by Ugrin et al. (2013) extends those findings and indicates that
economic consequences have the strongest effect on attitudes about committing financial
statement fraud, relative to other types of negative consequences, including the threat of jail and
professional censure. Thus, it seems reasonable to conclude that potential consequences, either
positive or negative, influence whether financial statement fraud occurs. This conclusion is
concerning, as accountants’ professional integrity, not incentives or consequences, should drive
their behavior.

The Role of Integrity and the Effects of Outcome Bias and Framing
Integrity is fundamental to the accounting profession and to the development of trust in
financial data, which, in turn, is essential to the functioning of the economy. Integrity is the
benchmark for every accounting decision (AICPA 2016). Accountants compromise their integrity
by committing financial statement fraud. Chen, Cumming, Hou, and Lee (2013, 75) point out that
integrity is a vital component of good corporate governance and honest financial reporting and that
the role of integrity ‘‘has largely been ignored’’ in the academic literature.
Accountants should seemingly attempt to maintain their integrity at all costs. However, the
amount of accounting fraud worldwide suggests that integrity is often compromised. We propose
that for many accountants such compromise is voluntary. As utility-maximizing individuals, they
are willing to expend their integrity to achieve a reward, just as they would expend money or other
forms of capital when making any risky decision.1 In this study, willingness to make the risky
decision is implied by one’s attitude toward fraud and the reward is financial. Furthermore, a
decision to commit financial statement fraud, which is a decision with the potential for positive and
negative outcomes, is subject to the same factors, pressures, and biases that affect typical
decisions involving risk and uncertainty. Two such factors are outcome bias and framing.
Outcome Bias
Outcome bias occurs when individuals evaluate a decision ex post and based on the
outcomes rather than on the information known at the time of the decision (Baron and Hershey
1988). Accounting research on outcome bias has examined the effects of outcomes on
performance evaluations of decisions made by managers (e.g., Lipe 1993) and auditors (Peecher
and Piercey 2008). That literature finds performance evaluations more strongly related to after-the-
fact results rather than to available information at the time of the decision to engage in the

1
Beccaria’s (1963) rational choice theory and Becker’s (1968) economic theory of crime, for example, propose
that crime is quite rational in cases where utility-maximizing individuals weigh costs and benefits when making
the decision to commit crimes.

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behavior. Outcome information takes precedence over analyses of decisions, despite the
information available at the time of the decision. Psychology literature has recently extended the
study of outcome bias to an ethical decision. For example, a study by Gino, Moore, and Bazerman
(2012, 2) finds that ‘‘individuals judge behaviors as less ethical, more blameworthy, and punish
them more harshly, when such behaviors led to undesirable consequences, even if they saw those
behaviors as acceptable before they knew its [sic] consequences.’’ Similarly, we propose that
accountants will determine that a behavior is more acceptable when it results in desirable
consequences. That is, accountants will determine that a behavior is less acceptable if it results in
less desirable consequences, regardless of the information known at the time of the decision.
Thus, we propose that accountants will have a more positive attitude about committing financial
statement fraud when they see a positive outcome, such as a financial bonus.
H1: Accountants will have a more positive attitude about committing financial statement
fraud when given information about a positive outcome (the receipt of a bonus) versus a
negative outcome (non-receipt of a bonus).

Framing Effects and Integrity

Individuals are boundedly rational, i.e., they can only manage limited information when
formulating judgments and decisions. Therefore, they implement strategies (i.e., heuristics) to
simplify information processing (Payne 1980; Simon 1957). Tversky and Kahneman (1981) and
Kahneman and Tversky (1984) suggest that individuals start to process information by gathering it
into mental accounts. Individuals reduce the information-processing load by incorporating a
minimal amount of related data into a mental account, where they are summed and weighed. They
then simplify cognitive processing further by framing the information incorporated into the mental
account. Framing is ‘‘the decision maker’s conception of acts, outcomes, and contingencies
associated with a particular choice’’ (Tversky and Kahneman 1981, 453). Anticipated outcomes
influence framing. In the mind of a decision maker, the anticipated outcome of an act influences
how he or she frames the capital expended2 when engaging in the act. In a cost frame, there is a
perceived benefit in the outcome. Accountants compromise their professional integrity when
intentionally falsifying financial data or committing financial statement fraud. We contend that in
compromising, they treat their professional integrity as a form of capital, voluntarily framing and
weighing it in a cost-benefit analysis before expending it. When they expect to receive a positive
return from committing financial statement fraud, they frame the integrity expended as a cost.
When they expect fraud will not result in a meaningful gain, they frame the integrity expended as a
loss.
Research has shown the framing of costs and losses influence judgments and decisions. For
example, Lipe (1993) showed that individuals frame expenditures of capital to analyze cost
variances as costs when the variance investigations uncovered problems that could be corrected
with future action, as compared to a loss frame when no possibilities for corrective action were
found. There was an association between the cost frame and a higher performance rating for the
manager who elected to undertake the variance investigation. Similarly, we expect an association
between the cost frame and more positive attitudes about committing financial statement fraud.
In sum, we propose that future accountants will treat integrity as a form of intrinsic capital that
can be voluntarily expended when committing financial statement fraud. They will frame integrity
as a cost when the fraud has a meaningful return and a loss when it does not. Ultimately, they will

2
Capital expended can be in the form of money, effort, or, in this situation, compromised integrity.

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FIGURE 1
Research Model

a
BONUS: Manipulated outcome indicating the manager either 1 receives, or 0 does not receive a bonus.
b
FRAME: Feelings about the manager’s sacrificed integrity ranging from 0 (Loss) to 100 (Cost) (the questionnaire item is
reverse coded).
c
ATTITUDE: Feelings toward the fraud scenario after receiving outcome information on a scale ranging from 3 (the manager’s
action taken in the scenario is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise).
d
DETECT: Manipulated outcome indicating the GAAP departure is either 1 uncovered, or 0 not uncovered by the auditors.

have a more positive attitude about committing fraud in the cost, relative to the loss, frame.
Therefore, we propose that the framing of integrity mediates the relationship between outcomes
and attitudes.
H2: An accountant’s decision frame, as it relates to the integrity expended when committing
financial statement fraud, will mediate the relationship between an expected outcome
and his or her attitude about committing financial statement fraud.
The research model based on the hypotheses is presented in Figure 1.

METHOD
Procedures
We used a scenario-based experiment with a questionnaire to investigate the hypothesized
relationship.3 We administered the experiment and questionnaire on paper in a classroom setting.
To begin the experiment, participants read a scenario in which a manager had committed fraud.
Participants then answered questions to set a baseline for their initial attitudes about the scenario
(hereafter referred to as PREATTITUDE). Next, participants randomly received one of four
manipulated outcomes to the scenario. Then, participants answered a question measuring their
perceptions about the manager’s sacrifice of integrity when committing fraud in the scenario
(hereafter referred to as FRAME) and they answered the attitude questions again to gauge the
effect of the outcome information on their attitudes (hereafter referred to as ATTITUDE).
Participants also answered a question that asked whether they would be likely to engage in the
same actions as the manager in the scenario (hereafter referred to as INTENT). Last, participants
answered questions about their individual characteristics, traits, and demographics. Details of the
scenario, the manipulated outcomes of the scenario, and other variables are presented in the
subsequent section.

3
This experiment was approved by the Human Subjects Committees of the researchers’ universities.

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Measures

The Scenario
We adapted a financial statement fraud scenario developed by Carpenter and Reimers
(2005), later used by Ugrin and Odom (2010), to set the stage for our experiment. Our scenario
differed from previous studies in that we presented it in third person, as a situation that another
manager had encountered and the choice that manager had made. This allowed for testing of an
outcome effect. All participants received the same base information presented below.
The bonus for a division manager of a large public company is calculated on his/her
division’s net income targets that he/she must meet. Last year that target was $1.5
million. The division manager was authorized to sign off on any decision made within his
or her division. He/she was faced with the following situation:

On December 15 of last year, the division ordered $150,000 worth of supplies in

anticipation of the seasonal rush. These supplies were delivered on the evening of
December 29 and the divisional manager expected to use all of the supplies by the end of
the year. If he/she recorded those supplies’ expense last year, net income would be $1.45
million and he/she would not meet the target and would therefore not receive his/her
bonus of $25,000 that he/she had worked hard for. It is a violation of generally accepted
accounting principles (GAAP) not to record the expense upon use, which he/she
expected, but if he/she did record the expense last year for the year ended December 31,
then he/she would not receive a bonus.

The division manager elected to delay recording the supplies expense, even though he/
she knew it was a GAAP departure.

The Outcomes (BONUS and DETECT)

The experimental manipulation was the outcome information provided to the participants. We
used a 2 3 2, between-subjects, full factorial experimental design related to detection of the
falsification of the supplies expense and receipt of a bonus.4 The falsification was either discovered
or undiscovered (hereafter this manipulated variable is referred to as DETECT). We manipulated
the receipt of a bonus (or lack thereof ) by indicating that the manager did or did not receive his/her
bonus (hereafter this manipulated variable is referred to as BONUS). The outcome information
was presented to participants as follows:
Treatment 1: No DETECT, BONUS

4
All of the outcome scenarios are possible, although the situation in which the fraud was uncovered and the
bonus was given nonetheless (Treatment 2) seems less plausible. However, it is conceivable that a firm may
still pay out bonuses even if a misstatement is rolled back after an audit, particularly in a situation like this,
where the division is relatively close (lacks only $50,000) to the earnings target, regardless of the inclusion of
the supplies expense. Thus, we included this treatment in the experiment and the analyses. Further, we added
additional information to Treatment 4 to clarify why no bonus was granted, even though the misstatement in
question was not uncovered. This additional explanation aimed to ensure participants did not consider various
alternatives as to why, which could confound results. Finally, we expect that negative consequences are
unlikely in all of the treatment scenarios for a number of reasons, primarily because the misstatement is small
and intent would be hard to prove.

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The departure from GAAP was not uncovered by the corporation’s auditors and the manager
received a full bonus.
Treatment 2: DETECT, BONUS
The departure from GAAP was uncovered by the corporation’s auditors but the manager still
received a full bonus nonetheless.
Treatment 3: DETECT, No BONUS
The departure was uncovered by the corporation’s auditors and the manager did not receive a
bonus.
Treatment 4: No DETECT, No BONUS
The departure was not uncovered by the corporation’s auditors but additional information was
uncovered by the audit and resulted in earnings below the target, and therefore the manager did
not receive a bonus.
Integrity Framing (FRAME)
We measured how individuals frame the integrity expended by the manager using a single-
item scaled from 0 to 100 and a procedure similar to Lipe (1993). The question stated:
Knowing the outcome of the decision not to record the supplies correctly, do you think
that the decision resulted in a cost or a loss of integrity to the manager? (A COST is
something given up to get something, a LOSS is giving up something with no
return.) We just want your opinion. How do you tend to think about it? Please make a
slash on the scale below to indicate your opinion:

Attitude (PREATTITUDE and ATTITUDE)

We measured attitudes using the three-item scale also used by Carpenter and Reimers
(2005) and Ugrin and Odom (2010). Those studies found attitudes to be a strong predictor of
intentions. The three-item scale stated:
Considering the scenario and the outcome of the manager’s decision, in general, how do
you feel about the decision the manager made in this scenario? Do you feel it was (circle
one for each scale):

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Other Variables
Other factors, such as participants’ levels of self-control, responsibility denial, and gender
could potentially co-vary with both primary variables of interest, FRAME and ATTITUDE. Self-
control and responsibility denial have been shown to correlate with various types of illicit behavior.
Nagin and Paternoster (1993) introduced self-control as a stable trait that influences one’s
propensity to commit a criminal offense. Their results indicate that individuals with low self-control
‘‘perceive a higher utility for crime since the rewards are immediate, and would discount the costs
since they are delayed’’; thus, we expect that self-control may also co-vary with attitudes about
financial statement fraud (Nagin and Paternoster 1993, 469). Self-control was measured by 24
items on a five-point Likert-type scale developed by Grasmick, Tittle, Bursik, and Arneklev (1993),
and used by Nagin and Paternoster (1993) and Ugrin and Odom (2010).
Schwartz (1977) introduced responsibility denial as a stable trait that influences how
individuals attribute responsibility to themselves or others. Harrington (1996) contends that
individuals who rate low in responsibility denial accept responsibility for actions, are concerned for
the welfare of others, meet moral commitments, and follow rules. Individuals who rate high in
responsibility denial tend to ‘‘ignore standard norms and rationalize their unethical behavior by
blaming depersonalized others, such as organizations’’ (Harrington 1996, 262). We used the 28-
item instrument developed by Schwartz (1973, 1977), validated by Harrington (1996), and shown
to have consistency and reliability by Ugrin and Odom (2010), to measure responsibility denial.
Finally, we expect that participants’ ATTITUDE about the scenario and associated outcomes
will correlate with their intentions (INTENT). Ajzen and Fishbein (1980) developed the theory of
planned behavior (TPB), which suggests that behavioral intentions predict an individual’s behavior.
Carpenter and Reimers (2005) successfully tested the relationship between attitudes and
intentions utilizing the fraud scenario discussed above. A significant relationship between
ATTITUDE and INTENT would add robustness to our results through consistency with the TPB.
A list of the main variables, the facets measured, and the sources are presented in Table 1.

Participants
Graduate and senior-level undergraduate accounting students participated in this study.
Students have been widely used as proxies in business, accounting, and ethics research, and
evidence supports the use of students in certain situations (Libby, Bloomfield, and Nelson 2002).5
Our students received a bonus grade as an incentive for either their participation in this experiment
or completion of an alternate assignment (all students elected to participate in the experiment).
The bonus amounted to 1.25 percent of the graduate students’ grade and 1.0 percent of the
undergraduate students’ grade.

5
A number of studies provide support for the use of accounting students as proxies for professional accountants
in an ethical situation, finding little difference between entry-level accounting students, graduate accounting
students, and professionals on ethical orientation and intention to commit unethical acts. For example, a study
by Cohen, Pant, and Sharp (2001) found the response patterns of all three groups to be highly similar when
examining participants’ reactions to eight diverse vignettes. Other studies have shown that graduate students
are good proxies for investors, managers, and executives in many situations (Elliott, Hodge, Kennedy, and
Pronk 2007; Hirst, Koonce, and Simko 1995; Maines and McDaniel 2000; Hodge, Kennedy, and Maines 2004;
Heuer, Cummings, and Hutabarat 1999) including managers making decisions about reporting fraudulent
financial data (Ugrin and Odom 2010).

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TABLE 1
Variables and Measures
Variable Facet(s) Measured Measurement Source
Independent Variable
BONUS Manipulated item measuring the receipt or Newly created
lack of receipt of a bonus Manipulated at two levels
Dependent Variables
ATTITUDE Feeling that the decision made by the Carpenter and Reimers (2005)
(PREATTITUDE) manager was: Three items
(1) Bad—Good
(2) Harmful—Beneficial
(3) Foolish—Wise
INTENT Likelihood of taking the same action as the Ajzen and Fishbein (1980) and
divisional manager in the scenario Carpenter and Reimers (2005)
One item
Mediating Variable
FRAME Feeling that the decision resulted in a cost Lipe (1993)
(or loss) of integrity to the manager One item
Potential Covariates
DETECT Manipulated item measuring whether the Newly created
fraud was detected or not detected Manipulated at two levels
SC Self-control Nagin and Paternoster (1993)
24 items
RD Responsibility denial Schwartz (1973)
28 items

Eighty-six students participated (48 seniors and 38 graduate students). We screened the data
using manipulation checks, tested for outliers, and tested for statistical assumptions. We removed
four observations for failing manipulation checks, leaving 82 usable responses.6

RESULTS
Preliminary Analyses, Descriptive Statistics, and Correlation Matrix
Descriptive statistics (Table 2) are presented for the entire sample (Panel A) and split between
graduate students (Panel B) and undergraduate students (Panel C). For the sample, ATTITUDE
ranges from a score of 3 to 15 (mean ¼ 7.207; SD ¼ 2.619), indicating that, on average,
participants fall slightly below the midpoint, which indicates that they would not favor committing

6
We performed a preliminary analysis to estimate the minimum sample size that would provide adequate
statistical power to uncover any effects and minimize Type I errors. We utilized G*Power 3.1 for a multiple
regression and based our analysis on seven predictors including the main variables of interest, potential
covariates SC and RD, and controlling for gender (GENDER) and participants’ baseline attitudes
(PREATTITUDE), an alpha ¼ 0.05, a medium effect size ¼ 0.25, and desired power ¼ 0.8. Our minimum
sample size estimate was 65.

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TABLE 2
Descriptive Statistics of the Primary Variables of Interest
Panel A: Sample
n Min. Max. Mean SD
ATTITUDE 82 3.000 15.000 7.207 2.619
INTENT 82 0.000 95.000 18.854 24.723
FRAME 82 0.000 100.000 45.402 37.168
BONUS 82 0.000 1.000 0.524 0.502
DETECT 82 0.000 1.000 0.488 0.502
SC 82 27.000 80.000 54.744 11.445
RD 82 34.000 99.000 66.927 12.349
GENDER 82 0.000 1.000 0.573 0.497
AGE 82 20.000 24.000 22.012 1.083

Panel B: Graduate Students

n Min. Max. Mean SD
ATTITUDE 36 3.000 11.000 7.111 2.315
INTENT 36 0.000 95.000 20.083 29.247
FRAME 36 0.000 100.000 47.362 38.350
BONUS 36 0.000 1.000 0.500 0.507
DETECT 36 0.000 1.000 0.500 0.507
SC 36 27.000 78.000 54.361 13.278
RD 36 34.000 99.000 64.833 15.634
GENDER 36 0.000 1.000 0.667 0.478
AGE 36 20.000 24.000 22.694 0.668

Panel C: Undergraduate Students

n Min. Max. Mean SD
ATTITUDE 46 3.000 15.000 7.282 2.857
INTENT 46 0.000 80.000 17.891 20.803
FRAME 46 0.000 100.000 43.970 36.568
BONUS 46 0.000 1.000 0.544 0.504
DETECT 46 0.000 1.000 0.478 0.505
SC 46 34.000 80.000 55.043 9.922
RD 46 52.000 85.000 68.565 8.838
GENDER 46 0.000 1.000 0.500 0.506
AGE 46 20.000 24.000 21.478 1.049
Variable Definitions:
ATTITUDE ¼ feelings toward the fraud scenario after receiving outcome information on a scale ranging from 3 (the manager’s
action taken in the scenario is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
INTENT ¼ likelihood of taking the same action as the manager in the scenario, ranging from 0 (not likely) to 100 (highly likely);
FRAME ¼ feelings about the manager’s sacrificed integrity ranging from 0 (Loss) to 100 (Cost) (the questionnaire item is reverse
coded);
BONUS ¼ manipulated outcome indicating that the manager either 1 receives, or 0 does not receive a bonus;
DETECT ¼ manipulated outcome indicating the GAAP departure is either 1 uncovered, or 0 not uncovered by the auditors;
SC ¼ self-control on a scale ranging from 24 (high self-control) to 120 (low self-control); and
RD ¼ responsibility denial on a scale ranging from 28 (low responsibility denial) to 140 (high responsibility denial).

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financial statement fraud. FRAME ranges from 0 to 100 (mean ¼ 45.402; SD ¼ 37.138), which
indicates high variability in the framing variable, which is central to our model. Self-control (SC)
ranges from 27 to 80 (mean ¼ 54.744; SD ¼ 11.445), and responsibility denial (RD) ranges from 34
to 99 (mean ¼ 66.297; SD ¼ 12.349). Finally, our participants’ AGE is between 20 and 24 years old
(mean ¼ 22.012; SD ¼ 1.083).
The graduate sample has more males (24) than females (12), while the undergraduate
sample has an equal distribution of males (23) and females (23). However, we performed t-tests of
the differences in the response patterns of the graduate and undergraduate student samples
across the ATTITUDE, FRAME, SC, and RD items. There were no significant differences between
the graduate and undergraduate students (all p . 0.100). Thus, we performed hypothesis tests on
the entire sample.
We tested to ensure the random assignment of participants to the treatment conditions. We
performed three ANOVAs to test for differences in SC, RD, and AGE across treatment conditions,
and a similar Chi-squared test for GENDER (Table 3). We found no significant differences (all p .
0.100), suggesting a random distribution of participants to conditions.
Table 4 shows the Pearson correlations between the variables of interest. As expected,
significant correlations exist between ATTITUDE and INTENT (p , 0.001), BONUS and
ATTITUDE (p , 0.001), and FRAME and ATTITUDE (p , 0.001). A significant correlation also
exists between DETECT and ATTITUDE (p ¼ 0.016); thus, we control for DETECT in the
hypothesis tests. Unlike other studies, we did not find significant correlations between SC and
ATTITUDE (p ¼ 0.832) or RD and ATTITUDE (p ¼ 0.650). Neither GENDER nor AGE correlated
with any other factors (all p . 0.100). Regardless, we controlled for SC, RD, and GENDER in the
hypothesis tests. We did not incorporate AGE because of the narrow range of participants’ ages.
Class status was also not incorporated as a control, as responses for graduate and undergraduate
students were similar, as discussed above.

Hypothesis Tests
To test the hypotheses, we conducted a mediation analysis using the procedure outlined in
Zhao, Lynch, and Chen (2010) and the SPSS PROCESS script developed by Hayes (2013). In the
analysis, ATTITUDE is the dependent variable, BONUS is the independent variable, and FRAME
is the mediating variable. Covariates are DETECT, SC, RD, and GENDER, along with
PREATTITUDE, the baseline measure of attitude that we collected after participants read the
initial stage-setting scenario. Table 5 displays the results of the analysis, including two regressions
and tests of the indirect effect of the BONUS outcome on ATTITUDE through FRAME.
Table 5, Panel A displays the results of regressing the mediating variable, FRAME, on the
independent variable, BONUS, with DETECT, SC, RD, GENDER, and PREATTITUDE included as
covariates (R2 ¼ 0.1795). The results show that BONUS is significantly related to FRAME (p ¼
0.0009) (Path A in the Model). The positive coefficient of BONUS on FRAME is consistent with our
proposition that the receipt of a bonus will result in a cost framing and a higher score on the
FRAME variable (i.e., that participants will view integrity as something that is given up for the
benefit of a bonus). The covariate DETECT is significant and negative (p ¼ 0.0431), suggesting a
tendency to frame integrity as a cost when the fraud is detected.
Table 5, Panel B displays the results of regressing the dependent variable, ATTITUDE, on the
independent variable, BONUS, and the moderating variable, FRAME, with DETECT, SC, RD,
GENDER, and PREATTITUDE included as covariates (R2 ¼ 0.4843). The results show that
ATTITUDE is negatively associated with FRAME (p ¼ 0.0004) (Path B in the model). The positive

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 TABLE 3
Descriptive Statistics by Treatment Condition
No BONUS/ BONUS/ BONUS/ No BONUS/ Significance
No DETECT DETECT No DETECT DETECT Overall of Group
Ugrin and Odom

(n ¼ 20) (n ¼ 21) (n ¼ 22) (n ¼ 19) (n ¼ 82) Difference Effect

ATTITUDE Mean 7.000 7.905 8.682 4.947 7.207 F ¼ 10.148a g2 ¼ 0.281c
(Std. Dev.) (1.825) (2.548) (2.678) (1.747) (2.619) p ¼ 0.000
PREATTITUDE Mean 7.950 7.381 7.682 6.684 7.439 F ¼ 0.996a g2 ¼ 0.037c
(Std. Dev.) (2.139) (2.291) (2.662) (2.518) (2.414) p ¼ 0.399
INTENT Mean 18.000 20.476 25.046 10.790 18.854 F ¼ 1.180a g2 ¼ 0.043c
(Std. Dev.) (27.453) (21.323) (26.890) (22.065) (24.723) p ¼ 0.323
FRAME Mean 44.000 55.191 60.772 18.263 45.402 F ¼ 6.093a g2 ¼ 0.190c
(Std. Dev.) (35.326) (38.836) (36.830) (21.110) (37.168) p ¼ 0.001
SC Mean 55.100 54.762 53.136 56.211 54.744 F ¼ 0.248a g2 ¼ 0.009c
(Std. Dev.) (13.123) (9.456) (12.175) (11.385) (11.445) p ¼ 0.862
RD Mean 67.350 67.667 67.227 65.316 66.927 F ¼ 0.140a g2 ¼ 0.005c
(Std. Dev.) (10.302) (11.779) (15.319) (11.940) (12.349) p ¼ 0.935
AGE Mean 22.000 22.333 21.955 21.739 22.012 F ¼ 1.052a g2 ¼ 0.039c
(Std. Dev.) (1.124) (0.967) (0.999) (1.240) (1.083) p ¼ 0.375
GENDER Male 12 13 12 10 47 v2 ¼ 0.479b OR ¼ 1.343d Male
Female 8 8 10 9 35 p ¼ 0.923

a
ANOVA result.
b
Chi-squared result.
c
Eta-squared.
d
Odds Ratio (OR) (likelihood of being male versus female).

Variable Definitions:
BONUS ¼ manipulated outcome indicating the manager either 1 receives, or 0 does not receive a bonus;
DETECT ¼ manipulated outcome indicating the GAAP departure is either 1 uncovered, or 0 not uncovered by the auditors;
ATTITUDE ¼ feelings toward the fraud scenario after receiving outcome information on a scale ranging from 3 (the manager’s action taken in the scenario is bad,
harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
PREATTITUDE ¼ feelings toward the fraud scenario before receiving outcome information on a scale ranging from 3 (the manager’s action taken in the scenario
is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
INTENT ¼ likelihood of taking the same action as the manager in the scenario ranging from 0 (not likely) to 100 (highly likely);
FRAME ¼ feelings about the manager’s sacrificed integrity ranging from 0 (Loss) to 100 (Cost) (the questionnaire item is reverse coded);
SC ¼ self-control on a scale ranging from 24 (high self-control) to 120 (low self-control);
RD ¼ responsibility denial on a scale ranging from 28 (low responsibility denial) to 140 (high responsibility denial); and
GENDER ¼ 0 (female) or 1 (male).

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 TABLE 4
Correlation Matrix
PRE-
ATTITUDE ATTITUDE INTENT BONUS DETECT FRAME SC RD GENDER
Ugrin and Odom

PREATTITUDE Pearson Corr. 0.388**

Sig. (two-tailed) 0.000
INTENT Pearson Corr. 0.454** 0.192
Sig. (two-tailed) 0.000 0.085
BONUS Pearson Corr. 0.442** 0.042 0.169
Sig. (two-tailed) 0.000 0.708 0.129
DETECT Pearson Corr. 0.265* 0.158 0.118 0.001
Sig. (two-tailed) 0.016 0.156 0.290 0.992
FRAME Pearson Corr. 0.483** 0.010 0.243* 0.359** 0.205
Sig. (two-tailed) 0.000 0.928 0.028 0.001 0.065
SC Pearson Corr. 0.024 0.047 0.200 0.075 0.061 0.020
Sig. (two-tailed) 0.832 0.673 0.072 0.502 0.589 0.858
RD Pearson Corr. 0.051 0.007 0.176 0.044 0.030 0.004 0.451**
Sig. (two-tailed) 0.650 0.952 0.113 0.694 0.789 0.972 0.000
GENDER Pearson Corr. 0.154 0.110 0.164 0.017 0.004 0.057 0.173 0.156
Sig. (two-tailed) 0.167 0.329 0.142 0.876 0.974 0.612 0.119 0.163
AGE Pearson Corr. 0.044 0.127 0.185 0.124 0.034 0.007 0.051 0.080 0.216
Sig. (two-tailed) 0.692 0.255 0.097 0.266 0.760 0.947 0.649 0.474 0.051

*, ** Indicate significant at the 0.05 and 0.01 levels, respectively, (two-tailed).

n ¼ 82.

Variable Definitions:
ATTITUDE ¼ feelings toward the fraud scenario after receiving outcome information on a scale ranging from 3 (the manager’s action taken in the scenario is bad,
harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
PREATTITUDE ¼ feelings toward the fraud scenario before receiving outcome information on a scale ranging from 3 (the manager’s action taken in the scenario
is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
INTENT ¼ likelihood of taking the same action as the manager in the scenario ranging from 0 (not likely) to 100 (highly likely);
FRAME ¼ feelings about the manager’s sacrificed integrity ranging from 0 (Loss) to 100 (Cost) (the questionnaire item is reverse coded);
BONUS ¼ manipulated outcome indicating the manager either 1 receives, or 0 does not receive a bonus;
DETECT ¼ manipulated outcome indicating the GAAP departure is either 1 uncovered, or 0 not uncovered by the auditors;
SC ¼ self-control on a scale ranging from 24 (high self-control) to 120 (low self-control);
RD ¼ responsibility denial on a scale ranging from 28 (low responsibility denial) to 140 (high responsibility denial); and
GENDER ¼ 0 (female) or 1 (male).

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Ugrin and Odom A85

TABLE 5
Mediation Analysis following the PROCESS Macro for SPSS Procedure of Hayes (2013)
Panel A: Regression of FRAME on BONUS and Covariates (DETECT, SC, RD, GENDER,
PREATTITUDE)
Predicted Coefficient
Variable Sign Estimate t-statistic p-value
Intercept 47.7944 1.7214 0.0893
BONUS þ (Path A) 26.9992 3.4630 0.0009
DETECT  16.1658 2.0573 0.0431
SC 0.0801 0.2068 0.8516
RD 0.1198 0.3364 0.7375
GENDER 4.6027 0.5724 0.5688
PREATTITUDE 1.0308 0.6252 0.5337
R ¼ 0.4237; R2 ¼ 0.1795; n ¼ 82

Panel B: Regression of ATTITUDE on FRAME and Covariates (DETECT, SC, RD, GENDER,
PREATTITUDE)
Predicted Coefficient
Variable Sign Estimate t-statistic p-value
Intercept 2.2372 1.4054 0.1641
FRAME þ (Path B) 0.0242 3.7339 0.0004
BONUS Null (Path C 0 ) 1.5748 3.3353 0.0013
DETECT  0.7320 10.6117 0.1113
SC 0.0020 0.0905 0.9281
RD 0.0038 0.1880 0.8514
GENDER 0.4284 0.9454 0.3475
PREATTITUDE 0.3757 4.0419 0.0001
R ¼ 0.6959; R2 ¼ 0.4843; n ¼ 82

Panel C: Indirect Effect of BONUS on ATTITUDE

Bootstrapped 95 Percent
Confidence Interval
(5,000 Iterations)
Indirect Effect,
a  b ¼ 26.9992  0.0242 Boot SE Lower Limit Upper Limit
0.6546 0.2830 0.2506 1.4406
(continued on next page)

coefficient for FRAME is consistent with our proposition that a cost FRAME will result in a more
positive ATTITUDE. However, BONUS remains significant in the regression (p ¼ 0.0013),
indicating that some direct effect remains (Path C 0 in the model), over and above the mediating
effect of FRAME. The findings support H1, which suggests that an outcome bias will be present
and evidenced by a significant relationship between BONUS and ATTITUDE.
Regarding H2, the indirect effect of BONUS on ATTITUDE (Table 5, Panel C) is positive (95
percent bootstrapped confidence interval using 5,000 iterations). FRAME mediates the

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Ugrin and Odom A86

TABLE 5 (continued)

Sobel test for indirect effect: Z ¼ 2.5357; p ¼ 0.0112.

Paths: Paths A, B, and C 0 are references on Figure 1.

Variable Definitions:
ATTITUDE ¼ feelings toward the fraud scenario after receiving outcome information on a scale ranging from 3 (the manager’s
action taken in the scenario is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise);
FRAME ¼ feelings about the manager’s sacrificed integrity ranging from 0 (Loss) to 100 (Cost) (the questionnaire item is reverse
coded);
BONUS ¼ manipulated outcome indicating the manager either 1 receives, or 0 does not receive a bonus.
DETECT ¼ manipulated outcome indicating the GAAP departure is either 1 uncovered, or 0 not uncovered by the auditors;
SC ¼ self-control on a scale ranging from 24 (high self-control) to 120 (low self-control);
RD ¼ responsibility denial on a scale ranging from 28 (low responsibility denial) to 140 (high responsibility denial);
GENDER ¼ 0 (female) or 1 (male); and
PREATTITUDE ¼ feelings toward the fraud scenario before receiving outcome information on a scale ranging from 3 (the
manager’s action taken in the scenario is bad, harmful, or foolish) to 21 (the manager’s action taken is good, beneficial, or wise).

relationship between BONUS and ATTITUDE, but because C 0 remains significant in the model, the
mediation is partial. A significant Sobel test for the indirect effect of BONUS on ATTITUDE also
supports H2 (p ¼ 0.0112).

CONCLUSION
We presented future accountants with a scenario and asked them to answer questions related
to their feelings about integrity and attitudes about committing fraud. In the scenario, a manager
committed financial statement fraud in the magnitude of $150,000 in order to achieve a bonus of
$25,000, and one of four potential outcomes occurred: the fraud was detected (or not), and the
manager received a bonus (or not). Our participants indicated, on a 0 to 100 scale, whether the
decision resulted in an integrity cost or loss to the manager. They then answered questions that
gauged their attitude about the fraud situation in terms of being good or bad, wise or foolish, and
beneficial or harmful. We found that their responses to the integrity question were influenced by the
outcome of the situation. When the manager received a bonus after falsifying the financial
statements and meeting an earnings target, participants framed the integrity given up by the
manager to be a cost and their attitudes were more positive, indicating they felt the manager’s
actions were more acceptable and that they would be more likely to take the same action. When
the fraud went unrewarded, participants framed integrity as a loss and their attitudes were less
positive. This framing effect suggests that future accountants’ integrity can be corrupted.
This finding adds to our understanding of how integrity is incorporated into the cost-benefit
analysis that future accountants undertake when considering financial statement fraud by showing
that integrity, an intrinsic factor, is considered much like extrinsic factors that are risked in the
judgment and decision-making process. It also contributes to the literature that explores the
psychological underpinnings of people’s decisions to commit fraud (e.g., Murphy and Dacin 2011)
by showing how heuristics and biases influence cost-benefit-based reasoning.
The findings should also be of interest to the accounting profession. Integrity is an important
determinant of attitudes and ethical behaviors. However, the profession may not be able to rely on
integrity as a means of controlling financial statement fraud in the future if accountants do not value
it. Many of our participants did not value integrity in a manner consistent with the profession. Thus,

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it seems that there continues to be a need for educating tomorrow’s accountants on the importance
of integrity and the consequences when there is a lack of it. We recommend that accounting
educators show their students the connections between accounting integrity, trust in financial data,
and the functioning of the economy.
The study has several limitations. First, although scenarios are frequently used in academic
literature, individuals may respond differently to real situations or to factors not observed here. For
example, other pressures not related to receiving a bonus, such as meeting projected numbers or
improving on the prior year’s numbers, could factor into a manager’s decisions, and firm training or
the pressure of firm culture could reduce the effect size.
The second limitation of the scenario is the relatively small fraud—a misstatement of
$150,000. A situation where the fraud is larger may shape participants’ attitudes differently.
However, other research has shown that misstatements often start small and grow over time
(Schrand and Zechman 2012). Thus, studying how people’s attitudes are formulated at early
points in the decision-making process, when intervention can more effectively limit losses, seems
important. The $25,000 bonus may also seem relatively small, but that depends on the
participants’ personal wealth. In a supplemental debriefing item, all participants indicated they
perceived the $25,000 to be a significant amount of money, which is unsurprising considering
participants were students. We also expect that the response patterns would hold even if the dollar
amounts of the fraud and bonus were larger or the participants were wealthy executives. Other
researchers have not found differences in risk preference patterns among people of different levels
of wealth (Kachelmeier and Shehata 1992).7
The use of a single item measure to capture FRAME is a limitation because a single item
makes it difficult to assess measurement reliability and it is impossible to pinpoint ‘‘different
sources of variability in the measurements’’ (Pedhauzur and Schmelkin 1991, 56). However, it has
been argued that the use of single-item measures can be practical (Nagy 2002), and using a
single-item measurement can be reasonable when a construct has limited dimensions or is
unambiguous (Wanous, Reichers, and Hudy 1997; Sackett and Larson 1990). We believe the use
of the single item is acceptable because the detailed definition of the cost and loss frames in the
instrument reduces ambiguity. Finally, the sample size is relatively small; however, there are
strong effects and adequate statistical power to detect the hypothesized relationships.
Research could extend this study in several ways. First, how does formalized ethics education
influence students’ attitudes and conceptions of integrity? Formal ethics training programs are a
common component of licensure for public accountants, and tests of their effects on future
accountants would be worthwhile. The participants in this study were students at two large public
universities. One of the universities has had a formal ethics education initiative in effect for more
than a decade and promotes ethics across the business curriculum.8 However, the initiative does
not offer an ethics-specific course or the equivalent of a professional ethics education course. It
would also be interesting to test our propositions on accounting professionals to determine whether
tomorrow’s accountants react differently than practicing accountants, as there is much debate over
the mindset of tomorrow’s workforce (Ethics Resource Center 2011; Meriac, Woehr, and Banister
2010; Twenge, Campbell, and Freeman 2012).
In conclusion, this study has provided valuable insights into an important factor that has
received little attention in accounting academic literature—integrity. The profession’s reliance on

7
Wealth effects are differences in response patterns by individuals with different levels of wealth.
8
Response patterns were not significantly different across universities.

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self-regulation and integrity to control fraud and abuse could be problematic in the future, if
accountants are easily corrupted. It may be beneficial for the profession and academia to work
together to come up with some real-world cases that could be used to help students recognize
situations where integrity is being challenged. We recommend that accounting educators show
their students the connections between accounting integrity, trust in financial data, and the
functioning of the economy. Several firms are currently providing faculty with more access to cases
and data; we encourage the firms to make sure that some of those cases focus on the need to
maintain integrity on the job.

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