Ethical Disillusion Paper

The definition of key terms that follow are commonly used terms by accounting professionals and experts in the accounting industry that are not commonly known, used, and/or understood by the general populace. Some of the following definitions used by the accounting industry, in particular auditors, hold different meanings and thus are clarified below, as related to their application in this study.

Collusion. Collusion is a group of individuals who perpetrate financial statement fraud. Groups may consist of a few individuals (e.g., CEO and CFO), several individuals (e.g., CEO and accounting department) or, the entire organization. In some cases, collusion may include external influence (e.g., a vendor). However, a member of top management

Earnings management occurs when a manager, or managers, use his or her judgment, in financial reporting, to alter the company’s financial reports. The manager purposefully structures the transaction(s) to favorably alter the financial statements and mislead stakeholders about the company’s economic performance or, to influence contractual outcomes, which depend on the reported accounting numbers (Brown, 2015).

Ethical leadership. Van Gils et al. (2015) defined ethical leadership as a process that emulates appropriate leader behavior and in return transfers such ethical behavior onward to followers through social learning, reinforcement, and communication of moral cues.

Fraud. For the purposes of Generally Accepted Auditing Standards (GAAS), fraud is the intentional act of deception that results in falsification and misrepresentation of an entity’s financial statements (SAS 122, 2012; Anand et al., 2015; Galletta, 2015).

Fraud triangle. The fraud triangle is a theoretical framework embedded in the psychology based on Cressey’s original work on the fraud theory. Accounting professionals use the fraud triangle to visualize the three components of the fraud theory, as well as to envision how the three components link together (Dellaportas,