FINANCIAL STAKE AND SUPPORT FOR EXPANDING GOVERNMENT INTERVENTION INTO CORPORATE GOVERNANCE OF NONPUBLIC ENTITIES

Allen and Ng (1997) determined that the financial stake of a Certified Public Accountant (CPA) in the practice of public accounting was significantly related to her/his support for relaxing certain ethical rules which banned varied types of fee collections and some types of advertising. The relationships found suggested that CPAs with a higher financial stake favored revising ethics bans in a manner that permitted them to protect and/or raise potential revenue streams. Allen and Ng (2001), building upon the 1997 study, found that self-interest among CPAs might be adversely impacting their moral reasoning. The backdrop for these collective results was an intrusion by the Federal Trade Commission (FTC) into the self-regulatory activity of CPAs via a consent order with the American Institute of CPAs (AICPA) that changed/relaxed certain ethics bans in the AICPA professional code of conduct. The current study was performed utilizing a different backdrop, namely the Sarbanes Oxley Act of 2002 or SOX, created by Congress and administered under the authority of the Securities and Exchange Commission (SEC). Like the FTC's consent order, the SEC's decree of SOX intruded upon the self-regulatory activity of the CPA profession by mandating certain changes aimed at improving corporate governance and the audit function. Again, the financial stake of CPAs was examined to determine whether it behaved as a significant variable relative to CPAs' support for a specific issue concerning SOX, that being an extension of SOX requirements to nonpublic entities. Findings show that CPAs with higher financial stake in the practice of public accounting favor expanding SOX's reach to nonpublic entities less than do CPAs with lower financial stake. When coupled with former studies, the current study adds credence to the notion that financial stake of CPAs serves as a significant element in CPAs' preferences toward ethical issues. Since CPAs, as professionals, are to be objective and independent in judgment, especially as auditors, a continued finding that financial stake is in play in a backdrop of changing ethics-based regulation is something to be taken seriously. In the present highly unstable economic environment, the public must be able to count on the CPA to exercise judgments in their best interest.