The Unintended Consequences of Material Weakness Reporting on Auditors' Acceptance of Aggressive Client Reporting

ABSTRACT Regulators are concerned that auditors do not sufficiently identify and report material weaknesses in internal control over financial reporting (ICFR). However, psychological licensing theory suggests reporting material weaknesses could have unintended consequences for acceptance of aggressive client financial reporting. In an experiment, we predict and find auditors accept more aggressive client reporting after they report a material weakness in ICFR than after they report no material weakness. We provide evidence licensing underlies this effect. In a second experiment, we investigate the efficacy of an intervention to reduce the identified licensing effects by prompting an audit quality goal. We find this prompt mitigates the unintended consequence when auditors report a material weakness. While regulators are concerned companies are undeservedly receiving clean ICFR audit opinions, our findings indicate adverse ICFR opinions may lead auditors to give companies undeservedly clean financial statement opinions. We provide a potential remedy to this unintended consequence.

Has the evidence for moral licensing been inflated by publication bias?

Moral licensing describes the phenomenon that displaying moral behavior can lead to subsequent immoral behavior. This is usually explained by the idea that an initial moral act affirms the moral self-image and hence licenses subsequent immoral acts. Previous meta-analyses on moral licensing indicate significant overall effects of d> .30. However, several large replication studies have either not found the effect or reported a substantially smaller effect size. The present article investigated whether this can be attributed to publication bias. Datasets from two previous meta-analyses on moral licensing were compared and when necessary modified. The larger dataset was used for the present analyses. Using PET-PEESE and a three-parameter-selection-model (3-PSM), we found some evidence for publication bias. The adjusted effect sizes were reduced to d= -0.05, p= .64 and d= 0.18, p= .002, respectively. While the first estimate could be an underestimation, we also found indications that the second estimate might exaggerate the true effect size. It is concluded that both the evidence for and the size of moral licensing effects has likely been inflated by publication bias. Furthermore, our findings indicate that culture moderates the moral licensing effect. Recommendations for future meta-analytic and empirical work are given. Subsequent studies on moral licensing should be adequately powered and ideally pre-registered.

Spurious NPI licensing and exhaustification

Under certain circumstances, speakers are subject to so-called spurious NPI licensing effects, whereby they perceive that NPIs without a c–commanding licensor are in fact licensed and grammatical. Previous studies have all involved the presence of a licensor in a position that linearly precedes, but does not c–command the NPI. In this paper, we show that spurious NPI licensing can occur in the outright absence of a licensor, in contexts that force an exhaustive parse. We reason that at least these instances of spurious NPI licensing might be reduced to the E XH operator pragmatically “rescuing” the NPI, in the sense of Giannakidou (1998, 2006).

Has the evidence for moral licensing been inflated by publication bias?

Moral licensing describes the phenomenon that displaying moral behavior can lead to subsequent immoral behavior. This is usually explained by the idea that an initial moral act affirms the moral self-image and hence licenses subsequent immoral acts. Previous meta-analyses on moral licensing indicate significant overall effects of d > .30. However, several large replication studies have either not found the effect or reported a substantially smaller effect size. The present article investigated whether this can be attributed to publication bias. Datasets from two previous meta-analyses on moral licensing were compared and when necessary modified. The larger dataset was used for the present analyses. Using PET-PEESE and a three-parameter-selection-model (3-PSM), we found some evidence for publication bias. The adjusted effect sizes were reduced to d = -.05, p = .64 and d = .18, p = .002, respectively. While the first estimate could be an underestimation, we also found indications that the second estimate might exaggerate the true effect size. It is concluded that both the evidence for and the size of moral licensing effects has likely been inflated by publication bias. Furthermore, our findings indicate that culture moderates the moral licensing effect. Recommendations for future meta-analytic and empirical work are given. Subsequent studies on moral licensing should be adequately powered and ideally pre-registered.

Taking Close Others’ Environmental Behavior Into Account When Striking the Moral Balance? Evidence for Vicarious Licensing, Not for Vicarious Cleansing

Research shows that people search for balance in their moral (e.g., environmentally friendly) behaviors such that they feel licensed to behave less morally after a previous moral act (licensing) and cleanse previous morally questionable behaviors by subsequently behaving more morally (cleansing). This article investigates whether this balancing may extend to close others, but not to nonclose others, and tests vicarious licensing and cleansing in the environmental domain. Study 1 showed that vicarious licensing effects are more likely when a close other displayed environmentally friendly (vs. neutral) behavior. Study 2 showed that environmental vicarious licensing effects are more likely for close than nonclose others. Studies 3 and 4 suggested that vicarious licensing effects, but not vicarious cleansing effects are more likely for close (vs. nonclose) others. Finally, a meta-analysis showed that overall these studies provide evidence for vicarious licensing effects, but not for vicarious cleansing effects in the environmental domain.

Motivation to Maintain a Nonprejudiced Identity

In the context of nationals’ attitudes toward immigrants, three studies investigated the moderating role of normative context and justification for prejudice on licensing effects. Justification for prejudice was either assessed (Studies 1 and 2) or experimentally induced (Study 3). The normative context (egalitarian vs. discriminatory) and the possibility to obtain (or not) credentials as a nonprejudiced person were manipulated in all studies. A licensing effect (i.e., greater prejudice in the credentials as compared to the no-credentials conditions) was observed only in the egalitarian norm condition when justification for prejudice was high. Thus, credentials appear to provide a way for establishing a normative self-image as nonprejudiced when justification for prejudice is high, which reduces conformity to an egalitarian norm.