Boiling the Frog Slowly: The Immersion of Financial Executives into Accounting Fraud.

• In Event: Fraud Research

Abstract

This is the first accounting study to adopt an ‘interpretive framework’ to explore and understand the underlying process by which financial executives became involved in fraud and their psychological reactions to misreporting decisions—i.e., how do financial executives cross the line? We conducted our investigation through face-to-face interviews with twelve former financial executives who were involved in major cases of accounting fraud and indicted with criminal and/or civil charges. Our analysis indicates that most lacked awareness of crossing the line and that some are still in denial of having committed any wrongdoing. Gradual exposures to accounting fraud in small steps explain executive’s ‘bounded awareness.’ Under the condition of incremental exposure, executives were so focused on meeting the demands of aggressive/intimidating top leaders and earnings driven reporting context that the majority lost sight of the ethicality of their reporting decisions. The majority lacked negative feelings, obeyed for different reasons, did not act out greed and justified their act from the perspective of legality and denial of responsibility.

Authors

• Ikseon Suh, Marquette University

• Kristina Linke, University of Groningen

• John T Sweeney, University of Kansas

• Joseph Wall, Carthage College