Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Corruption Awareness, Ethical Sensitivity, Professional
Skepticism and Risk of Corruption Assessment:
Exploring the Multiple Relationship in Indonesian Case
Ashari* Muhamad Masruri** and Nafi Inayati Zahro***
This study examine the multiple relationship between
corruption awareness as proxied by perception about
corruption existence and support to anti corruption
program, ethical sensitivity, professional skepticism
and risk of corruption assessment of government
internal auditor in Indonesia. Based on the model of
ethical decision making proposed by Rest (1986) and
Jones (1991) and response on questionnaire from 33
regional government internal audit office of three
province, I investigate the hypothesis of (1) the effect
of perception of corruption existence on support to
anti corruption program, (2) perception about
corruption existence on professional skepticism, (3)
support to anti corruption
program
on risk
assessment, (4) ethical sensitivity on perception
about corruption existence, (5) ethical sensitivity on
risk assessment, (6) professional skepticism on
ethical sensitivity, and (7) professional skepticism on
risk assessment. My result show that for hypothesis
no. 1,3,4, and 7, there are significant positive
relationship, and for hypothesis no.2,5,6 there are no
significant relationship. This study contribute to
theoretical consideration about the variables in
exploring auditor risk assessment. Also this study
providing preliminary evidence in practicing area
about team selection in conducting audit task.
1. Introduction
Internal auditor has critical function in preventing and detecting fraud due to
plethora of financial statement fraud (Siegel and Miller, 2010). Besides its role in
serving the need of management, internal auditor are take more responsibility
in detecting fraud. Compared with external auditor, internal auditor tends to
find fraud often (Corless, 2009). A study conducted by KPMG (2003) and the
Association of Fraud Examiner (2008) found that external auditor is rarely
discovering fraud. Internal auditor receive an advantage in that they work for
single company where they get to know its people and policies in much greater
depth than is possible for external auditor (Corless, 2009). Because its
*
Lecturer of Accounting Department, Faculty of economics University of Muria Kudus Indonesia
Email: ashari_umk@yahoo.com
**
Lecturer of Dean of Faculty of economics University of Muria Kudus Indonesia
Email:m_ruri56@yahoo.com
***
Lecturer of Accounting Department, Faculty of economics University of Muria Kudus Indonesia
Email: nafi_umk@yahoo.co.id
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
advantageous, fraud detection in company must be rely on internal auditor
function. The implementation of SAS 82, SAS 99, and section 10A, also gives
new meaning to the importance of the role and responsibility of internal
auditors in deterrence, detecting, investigating and reporting of fraud (Hillison
et al., 1999, Kranacher et al., 2008). As implication for this standard
implementation, the effectiveness of internal auditor function in organization can
be measured by how they can deter, prevent and detect fraud, which
government organization is how government internal auditor can deter, prevent
and detect corruption.
Most of important factors in the determination of the auditor’s effectiveness in
his job is how successful he is in developing a good relationship with his
associates not to whom he report, so the critical factor may be in the personality
of auditor and not in the characteristics of his position or the degree of
independences (Nelson, 1973). Research on the fraud risk assessment by
auditor has been lie on auditor sensitiveness to quantitative and qualitative
fraud indicators (red flags) which are defined as a condition or circumstances
that indicate potential fraud. Auditor sensitiveness to fraud indicators will help to
assess risk of fraud in planning the audit examination (Pincus, 1989).
In the auditing literature, research studying on the factors that affecting auditor
risk assessment incorporates psychological and sociological factors
(Ramamoorti, 2008). As widely disseminated by Association of Certified Fraud
Examiner (ACFE), fraud can viewed from conceptual framework that so called
as fraud triangle. The fraud triangle is having three elements viz., perceived
incentives/pressure, perceived opportunities, and rationalization of fraud
behavior, and therefore all three elements of fraud triangle are influenced by
fraud perpetrator’s psychology (Ramamoorti, 2008). As consequences, these
element of fraud triangle can be analyzed using psychology and sociology
perspectives. From psychology perspective, fraud viewed as a deviant
behavior, and it can be analyzed as impact of culture and context of behavior.
From criminology perspective which is the branch of sociology, fraud can be
explained by three factor: supply of motivated offender, the availability of the
suitable targets, and the absence of capable guardians (Ramamoorti 2008).
When assessing fraud risk, the auditor must make a judgment about the
existence of all three element of fraud triangle, therefore the process as
described by Libby and Lewis (1977) auditor assess risk of fraud is an
interaction between (1) the cues an auditor receives and (2) the auditor’s
assessment of those cues. Hammerley (2011) propose that fraud risk factor
characteristics will effect auditor performance in risk factors identification,
hypothesis generation, risk assessment and audit program modification.
Because two auditors may make different assessments of the same cues, the
fraud literature should benefit from understanding which personal
characteristics affect auditor judgment (Watson 2004).
Researches conducting in investigating effect of auditor personal characteristics
have mixed result. Pincus (1989) reported that when auditors have cues that
allow identification of a seeded fraud, they rate seeded fraud as the most likely
cause of misstatement form among possible cues. However, when the fraud
risk identification process distracts auditor from identifying other cues, it appear
that this impairs fraud risk assessment (Pincus 1989;Hackenberg 1992; Asare
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
and Wright 2004). Additionally, increased risk assessments do not indicate that
auditor know how to determine whether their fraud hypothesis is true
(Hammersley 2011). Because only a few researches have been conducted to
explore the relationship among corruption awareness, ethical sensitivity,
professional skepticism and risk of corruption assessment, I am interest to
investigate their relationship.
International comparative studies have reported that Indonesia has suffered
significantly from corruption. Transparency International (TI) for example
reported that Indonesia’ corruption perception index (CPI) was 3.2 and rated as
a country more afflicted with corruption (TII 2012). This corruption index score
placed Indonesia in rank 118th together with Argentina, Benin, Surname, and
others developing countries. Among ASEAN Countries, Indonesia’ rank is
placed below Singapore (9.2), Brunei (5.2), Malaysia (4.3) and Thailand (3.4).
Another corruption index is Bribery Index (0-10 where higher score showing
higher bribery) were scored (7.1) for Indonesia parallel with corruption
perception index (Kompas 2011). Although the corruption index was increase
compared with prior year (2010 index was 2.80), but this condition is
unfavorable because Indonesian Government has targeting that CPI is 5.5.
This indicators also showing that there are not improvement in anti corruption
program and Indonesia is still having high risk of fraud and corruption. With the
high risk of corruption in Indonesia, government internal auditors have a crucial
function in creating good government governance and in supporting successful
of anti corruption programs.
The importance role of the internal auditor in preventing and detecting fraud,
contradicted with Indonesia’ internal auditor condition. Recent data from
Indonesia Government Internal Auditor Association (AAIPI) showing that 94% of
government internal auditor cannot detect fraud and corruption (Bisnis.com
2012). This lack of ability in detecting fraud, because, internal auditor is not well
developed and it is often underfunded in government (Dye 2007). Contradicted
with performance of internal auditor in private firm, according to data from
AAIPI, Indonesia’s government internal auditor, are less likely to discover fraud.
This unfavorable condition of government internal auditor, need capabilities
improvement in detecting fraud and corruption. This study provides the
preliminary evidence for government and other parties who concern with
improvement of capabilities of government internal auditor in preventing and
detecting corruption.
This research is contributed to literature in several ways. First, it’s giving a
preliminary evidence about corruption awareness, ethical sensitivity,
professional skepticism and risk of corruption assessment among government
internal auditor in Indonesia. Second, its study providing evidence about
relationship among corruption awareness, ethical sensitivity, professional
skepticism and risk of corruption assessment. Finally, this study providing basic
guidance for government agencies in selecting personal team for audit
engagement based on personal characteristics of internal auditor.
The remainder of the paper is presented in three main parts. The second
section describes the theoretical foundation and development. The third section
describes the research method and procedures used in this study. The fourth
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
section presents and discusses the results. The fifth section concludes and
highlights for future research.
2. Literature Review
2.1. Corruption
Corruption is defined as the use of public office for private gain, or in other
words, use of official position, rank or status by an office bearer for his own
personal benefit (Myint, 2000). Such behavior included this are: (a) bribery, (b)
extortion, (c) fraud, (d) embezzlement, (e) nepotism, (f) cronyism, (g)
appropriation of public assets and property for private use, and (h) influence
peddling. In government activities, corruption can arise under circumstance
such as government contracts, government revenues, government benefits,
time saving and regulatory avoidance, and influencing outcomes of legal and
regulatory processes. According to Klitgaard (1998) corruption can be set by
following equation.
C = R+D-A
Where C is corruption, R is economics rent, D is discretionary power, and S for
accountability. Economics rent arises when a person has something unique or
special, so he can charge more than normal price for it use and earn economics
rent or monopoly profit. If applied for government official, some bureaucrat
working in the business license issuing office, so they own special authorization
to grant permission and they can use their official position as economics rent. If
more economics rent (R) exist in a country, the possibility of corruption exits
will be larger. The discretionary power arise because it is not possible to devise
rules and regulations that are watertight and foolproof and will take care of all
contingencies that can crop up in trying to control an economics activities.
Similarly, the greater the discretionary power (D) granted to administrator, there
will be greater the corruption occur. Accountability has to do with that fact that
for proper observance of rules and regulation, where for the ones who has
economics rent and discretionary power must be held for responsible and
accountable for their actions. From those equation, its seems that corruption
occurrence can be reduced by accountability. If accountability can be increased
in the same amount of economics rent and discretionary power, then we can
reduce the corruption occurrence. In the government bodies, one of the
important bodies in creating accountabilities is government internal audit.
2.2. Risk of Corruption Assessment
Public had been expected that government internal auditor has a duty in respect
of the risk of corruption in public sector. ISA 240 (IFAC 2004), states that the
primary responsibility to prevent and detect fraud rest with management and
those charged with governance. Auditor performing a preliminary overall fraud
risk assessment during planning based on fraud risk identified and fraud
hypothesis generated. The audit preliminary risk assessment is important
determinant of audit effectiveness because its guide auditor decisions about
whether changes to audit program are necessary (Hammersley, 2011).
A number of studies has examined the effect of auditor risk assessment during
audit planning stage of audit identification. Knap and Knap (2011), reported that
auditor manager assess fraud risk higher when fraud is present than when fraud
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Proceedings of 3rd Asia-Pacific Business Research Conference
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is absent. Zimbelman (1997) reported that auditor who separately assess fraud
risk and error risk, assess fraud risk higher when red flags are present.
Apostolou et al. (2001) report that auditors rank red flags related to
management characteristics and influence over the control environment as
much more important to the fraud risk assessment that red flags related to
operating, financial stability, and industry conditions. Asare and Wright (2004)
provide the basis for generating specific fraud hypotheses and report that
auditors who generate fraud hypotheses unaided assess fraud risk higher than
auditors who use a red flags checklist that lacked the specific fraud present.
Wilk and Zimbelman (2004) also report that when fraud risk is low,
decomposition of red flags into opportunity and incentives cues, makes fraud
risk assessment more sensitive to these cues, but when fraud risk is high,
auditor equally sensitive to these cues with or without decomposition.
Hammersley et al. (2011) also reported that auditor seniors assess fraud risk
higher when they receive material weakness information that makes fraud cues
more salient.
2.3. Corruption Awareness
Awareness is almost of cognitive behavior in bottom rung of affective domain
(Krathwohl et al., 1964). The concept of corruption awareness can be derived
from concept of situation awareness. Situation awareness is the perception of
the elements in the environment within a volume of time and space, the
comprehension of their meaning, and the projection of their status in the near
future (Endsley, 1995). Based on this definition, there are three element of
situation awareness: perception of element in the environment, the
comprehension of their meaning and projection of future status. Perception of
element in the environment involves making distinction about relevant and
irrelevant information. The higher risk of corruption environment may contain
considerable information, which is relevant to internal auditor in order to
complete fraud assessment task. When the fundamental perception of
information is occur, it is possible to achieve the comprehension, which is the
synthesis of information perceived during the perception. The comprehension is
go beyond the perception and includes an in-dept of understanding of the
significant of the information. After perception and comprehension, the final
level is the ability to project of future course of action based on knowledge of
the environmental information and comprehension of the situation. In internal
audit profession, perceived element of environment can be measured by
perceived of corruption existence in organization. The level of comprehension
for internal auditor is in-dept understanding of the significant of the corruption
information. The level of the ability to project of future course of action to
assess risk of corruption based on perceived corruption information and
awareness about the corruption issues and attitude to support anti corruption
program. I expect that if auditor perceive that corruption is exist in his
environment, he will support to anti corruption program. Also if auditor where
perceived that corruption is exist in his environment, he will have higher
professional skepticism as required by audit standard.
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
H1: Perception about corruption existence will has positive effect on attitude to
support anti corruption program.
H2: Perception about
corruption existence will has positive effect on
professional skepticism.
Previous study has been submitted that in order to give due to regard to the
possibility of corruption, an auditor needs to be sensitive to the possibility of
corruption (Labuschagne and Els, 2006). Research conducted by
Abdolmohammadi and Owhoso (2000), concluded that if auditors are not
sensitive to fraud issues, they can’t perceive or assess them and will therefore
be unable to incorporate the in audit judgment. The essential behavior to be
measured at the level of awareness is whether the internal auditor is conscious
with something whether he is aware of the existence of some person,
phenomenon, event if state of affairs (Krathwohl et al., 1964). Based on those
literature, I proposes that higher level of attitude to support anti corruption
program will increase auditor risk of corruption assessment.
H3: attitude to support anti corruption program has positive effect on risk of
corruption assessment.
The tasks undertaken in the internal audit function require a set of social skills
which may vary across work environments and economies (Siegel & Miller,
2010). In order to act ethically, individuals must be aware of what is considered
right and wrong within society (Diskerson 2009). But if the ambiguity is exist, it
will increases the likelihood that individuals will be unaware of the ethicality of a
given situation. Within auditing profession, Social consensus will reduces ethical
ambiguity (Chia & Mee, 2000; Jones, 1991) and therefore heightens ethical
awareness, judgment and behavior. Dickerson (2009) reported that auditor
ethical sensitivity was heightened by the extent
of social agreement
surrounding the ethical issues. In this research I proposes that corruption
awareness has a positive effect on ethical sensitivity.
H4: Ethical sensitivity has positive effect on Perception about
existence.
corruption
2.4. Ethical Sensitivity
Rest (1986) has developed a cognitive model for individual decision making
include moral sensitivity, moral judgment, moral motivation and moral character.
Ethical sensitivity is the ability to identify the salient aspect of ethical dilemma
that involves ability to see the implication of action outside one’s environment
within the context of broader social picture. While auditor able to identify ethical
dilemma around his organization, it will affect his perception of risk in
performing audit task and finally will increase his assessment on risk of
corruption. Another ethical model is the Jones’ (1991) model, that focuses on
ethical issues (magnitude of consequences, social consensus, probability of
effect, temporal immediacy, proximity and concentration of effect) is related to
ethical decision making and behavior. The second component of Rest’s and
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Jones’ model (moral judgment), incorporate the process by which individuals
define what ethical/moral means to them. This moral judgment component is
actually based on Kohlberg’s (1976) model of cognitive moral development.
Generally, individual’s ethical decision making schema will not be accessed if
she/he does not perceive a situation as involving ethical issues (Rest, 1979).
This condition can lead to potentially unethical decisions, wherein the individual
is only considering economic impacts in the decision making process to the
exclusion of ethical considerations. Yetmar and Eastman (2000) investigated
whether five factors affected a model of ethical sensitivity using tax
practitioners, while Shaub et al. (1993) found a negative relationship between
auditors’ ethical orientation and ethical sensitivity using a survey with a single
ethical scenario. If the auditor is work in high level of unethical environment
(high risk of corruption), he should incorporate this situation on his judgment
about risk assessment. Abdolmohammadi and Owhoso (2000) reported that
senior auditors were sensitive to ethical information in their assessment of the
likely of fraud. Awhoso (2002) also reported that practicing male and female
auditor are sensitive to ethical information when assessing client’s likely of
fraud. Based on those study, here I proposes that ethical sensitivity will increase
auditor’ risk of corruption assessment.
H5: Ethical sensitivity has positive effect on risk of corruption assessment
Within the ethical decision making literature, ethical sensitivity is generally
measured as dependent variables (Dickerson, 2009). The numerous
independent variables include: cognitive moral development, ethical orientation,
professional commitment, organizational commitment, professional skepticism,
cultural environment, professional code of conduct, and personal characteristics
(i.e. age, education, training and experience). Bases on those literatures, I
propose the effect of professional skepticism on ethical sensitivity.
H6: Professional skepticism has positive effect on ethical sensitivity.
2.5. Professional Skepticism
Auditing Standard Setter Body has recognized the importance of professional
skepticism. From beginning codification of auditing standard (SAS no 1), trough
today, Professional skepticism has been widely recognized as one of auditor
professional attribute. These requirements also supported with other audit
statement, (AU 230.07, PCAOB 2007 AS no 5. PCAOB 2008). According to
SAS no 1, ―an auditor must have questioning mind and critically assess the
evidence obtained‖. Auditing Standard Setter Body has recognized the
importance of professional skepticism. From beginning codification of auditing
standard (SAS no 1), trough today, Professional skepticism has been widely
recognized as one of auditor professional attribute. SAS No 1, mandates that
auditor must use professional skepticism due to professional care.
These
requirements also supported with other audit statement, (AU 230.07, PCAOB
2007 AS no 5.4, PCAOB 2008).
Skepticism is formed when individuals create cognitive ―categories‖ of incoming
information and treat all information according to a set of stereotypes or beliefs
regarding what they feel a particular message is trying to accomplish (Friestad
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Proceedings of 3rd Asia-Pacific Business Research Conference
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and Wright 1999). According to those definition, in conducting assessment of
audit evidence is auditor need skepticism or suspicion (see Kerler and Killoug
2009; Nelson 2009; Rose 2007; Quadackers et al. 2009) as required by auditing
standard. Hurtt (2010), has been developing a scale to measure professional
skepticism comprising six characteristics which can be both a trait and a state.
This scale was described as follows:
 Questioning mind: This characteristic was found in the SAS No. 82
(AICPA, 1997a), SAS 99 (AICPA, 2002) and ISA 240 (IFAC 2009)
definition of professional skepticism. SAS 99 defines professional
skepticism as requires an ongoing questioning whether the information
and evidence obtained suggest that a material misstatement due to
fraud has occurred. In ISA no 240, professional skepticism was
proposed as an attitude that includes questioning mind and critical
assessment of audit evidence. In philosophy literature, skepticism is
also includes the concept of questioning mind or disposition toward
inquiry.
 Suspension of judgment: The Auditing Standards, SAS no. 1 indicates
the importance of suspension of judgment when accepting management
assertion until sufficient evidence is collected.
 Search for Knowledge: In auditing literature, Mautz and Sharaf (1961)
indicate the importance of curiosity when performing audit. Search for
knowledge is different from concept of questioning mind where
questioning mind is related with some sense of disbelief or doubt, while
search for knowledge is more of general curiosity or interest (Hurtt
2010).
 Interpersonal understanding: Interpersonal understanding is much
related with evidence evaluation, which deal with the motivation and
integrity of the individual whose provide evidence. Auditing Standard,
SAS no. 82, recognize that potentially misleading evidence might come
from client personnel and recommends corroboration. Wilk and
Zimbelman (2004) highlighted that fraud is considered occurred when
there are any interaction of three causal influences: incentive, attitude,
and opportunity. Two causal factors were much related with subject
factor. Thus by having interpersonal understanding, its posited that
auditor will recognize the potential bias, inaccurate, or misleading
information provided by client.
 Autonomy: Autonomy is important aspect of auditor characteristics,
while he or she decide when a sufficient level of information has been
obtained to personally satisfy. Mautz and Sharaf (1961) noted that
auditor must have professional courage not only to critically examine
and perhaps discard the proposal from other, but also to submit his own
inventions to same kind of detached and searching evaluation.
 Self Esteem: Self esteem refers to individual overall evaluation of
his/her competencies (Rosenberg 1965). Skepticism required a certain
level of self esteem (Hurtt 2010). Self esteem was an important aspect
in successful inquiry (Hookway 1990). By having self-esteem, auditor
able to resist persuasion attempts and challenges another’s assumption
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Proceedings of 3rd Asia-Pacific Business Research Conference
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or conclusion. When evaluating evidence, self esteem also increasing
auditor awareness about trustfulness assertion and explanation from
client.
Nelson (2009), defines Professional skepticism as indicated by auditor
judgments and decisions that reflect a heightened assessment of the risk that
an assertion is incorrect, conditional on the information available to the auditor.
SAS no 109, stated that auditor performing risk assessment procedures to
obtain understanding of entity and its environment by inquiries of management
and others within the entity, analytical procedures and observation and
inspection. Risk assessment is one of important part of auditor task during the
beginning of engagement and presenting audit report.
The two of the dimension of skepticism from Hurtt’ professional skepticism is
questioning mind and suspension of judgment. These two dimension is
consistent with the concept disbelieve which opposite of trust. Kerler and
Killough (2009) proposed that trust about management will negatively affect
perceived risk of management fraud. Many of research conducting in
professional skepticism area have been trying to investigate the relationship
between professional skepticism and fraud detection skill (Carpenter and
Reimers 2011; McMillan and White 1993; Payne and Ramsay 2005; Rose
2007; Saksena 2010). All of these research have been recognized that
professional skepticism is one of auditor’s attribute that will increase auditor
skill especially in performing fraud detection task (Harris and Brown 2000;
Munter and Ratcliff 1999; Sandra et al 2001; Saksena 2010). Payne and
Ramsay (2005) indicated that auditor with low level of skepticism anchoring low
fraud risk assessment. Consistent with that studies, Kerler and Killough studies
(2009) also confirmed that trust about management negatively affected
perceived risk of management fraud. Using professional skepticism in
performing audit task will increase auditor sensitiveness of fraud (Carpenter and
Reimers 2011). McMillan and White (1993), Payne and Ramsay (2005), stated
that auditor who having higher professional skepticism also showing higher
fraud risk assessment compared with low professional skepticism. Another
research also showing that higher auditor skepticism increasing auditor
sensitiveness to fraud possibility conducted by management (Rose 2007;
Carpenter and Reimers 2011). Based on those research, I expect that higher
level of professional skepticism to be related with higher risk assessment,
stated formally:
H7 : Auditor’ professional skepticism will be positively related to risk
assessment.
Based on previous literature review, the research framework can be depicted as
following image 1.
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Image 1
Research Framework
Perception of
Corruption
Support to Anti
Corruption
Professional
Skepticism
Risk
Assessment
Ethical
Sensitivity
3. The Methodology and Model
3.1. Sampling and Respondent
Data were collected by sending a questionnaire to government internal auditor
in Indonesia. Total of 800 questionnaires were sent to 33 regional government
internal auditor office which is randomly selected from three provinces. From
the questionnaires have been sent, about 250 was returned but there are 24
questionnaires can not be analyzed because incomplete answer, therefore only
226 questionnaires were sufficient to analyze. The description of respondent
presented in table 1.
Table 1
Respondent Description
Province Numbers
Gov
Quest Quest Incomplete Sufficient
of gov
Office
Sent Return
to
office
Selected
Analyzed
Central
34
12
315
110
12
98
Java
East Java
37
14
343
86
8
78
West
26
7
241
54
4
50
Java
Total
97
33
900
250
24
226
3.2. Variables Measurement
Corruption awareness scales are measured by adopting corruption awareness
scale developed by Bowman & Gilligan (2007) with adjustment for Indonesian
context. The corruption awareness was divided onto two dimensions that are
perception of corruption existence and attitude to support anti corruption
programs. Perception of corruption existence are comprising 7 questions witch
scaled form 1 to 6. Attitude to support anti corruption program scales are
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Proceedings of 3rd Asia-Pacific Business Research Conference
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comprising 2 question scaled from 1 to 10. The risk assessment material used
in this research was adapting from Payne and Ramsay (2005).
The
professional skepticism scale is measured by Hurtt’ Scale of Professional
Skepticism developed by Hurtt (2010) which answers are scaled from 1 to 6.
The ethical sensitivity was measured three cases were developed in terms of
relationship where its used as measure ethical sensitivity in the area of public
administration. This indicator was developed by Choi and Perry (2010). The
first indicator was developed in a situation regarding the relationship between
administrators and citizens. The second indicator was made from a situation in
which an administrator’s behavior is directly relevant to his or her responsibility.
The third was developed in a work situation relevant to the hierarchical
relationship between boss and subordinates. As much as possible, all cases
were developed in the form of short stories, which help respondents maintain
interest while concentrating on the questionnaire. Otherwise, subjects might
lose interest in the survey and not respond well to the cases. All of instrument
had been translated into Indonesian and adjusted to Indonesia’ condition.
3.3. Data Analysis
As complex relationship among variables, I use structural equation modeling
(SEM) analysis to explore its relationship. This method is benefit because
compared with regression analysis that we can only analysis between one
variable dependent and others independent variables, in SEM we can explore
multiple relationship among one or more dependent and independent variable.
Other benefit is that by using SEM, we can analysis relationship among
observed variables and latent variables. I used AMOS software in conducting
SEM Analysis.
4. The Findings
4.1. Descriptive Analysis
The following table 2 presented descriptive statistics from
the variables of the study.
Table 2
Survey Respondent
Std
Variable
Mean
Dev
Risk Assessment
15.48
2.53
Perception of Corruption
Existence
27.18
3.37
Support to Anti Corruption
Program
15.79
2.162
Professional Skepticism
135.28
13.493
Ethical Sensitivity
9.87
1.68
summarized item in
Min
9
Max
20
19
35
10
95
5
20
166
12
4.2. Reliability
The Cronbach alpha used to assess internal consistency which coefficient of
Cronbach alpha for all variables are presented on table 3.
Table 3
Cronbach Alpha Score
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Proceedings of 3rd Asia-Pacific Business Research Conference
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Variable
Risk Assessment
Perception of Corruption Existence
Support to Anti Corruption Program
Professional Skepticism
Ethical Sensitivity
Cronbach
Alpha
0.89
0.715
0.835
0.795
0.851
From those table, its seems that all variables have Cronbach alpha more than
0.7 as proposed by Nunnaly (1978), and it can be concluded that all of
variables have satisfactory internal consistency.
4.3. Normality Test
One of the critical assumption in the conduct of Structural Equation Modeling
(SEM) analysis and in the use of AMOS is hat data is normal. Based on AMOS
output in the assessment normality section its seem that not any question who
having the standardized kurtosis index more than value 3, so it can be
concluded that all of item in questionnaires are normally distributed (Byrne
2010). This normality measurement is used as indicators of univariate normality.
Byrne (2010) suggested that although the presence of nonnormal observed
variables precludes the possibility of a multivariate normal distribution, the
converse is not necessarily true. In this study, although its presence of
univariate normality, I have to checks its multivariate normal distribution using
CR of kurtosis value, which value greater than 5 present nonnormal distribution.
According to AMOS output, its seem that value of CR is 10.1 indicate that data
are not normally distributed. An alternative method when data is nonnormally
distributed is by using Asymptotic Distribution Free (ADF) estimation (Byrne
2010). But it is well known that unless sample size is extremely large (1.0005.000 case), the ADF method performs poorly and yielded severely distorted
estimated values, and because in this study sample size is only 226, it is not
possible to perform analysis with ADF estimation. Another alternative method is
by employing corrected the test statistics by incorporating a scaling correction
for X2 statistics (Chou, Bentler and Satora 1991, Hu et al 1992).
4.4. Model Evaluation
As SEM takes a confirmatory approach to the analysis of a structural theory
bearing some phenomenon, I must evaluate model how fits is my model or how
adequate is my model with the sample data. Following table 4 is present result
of modal fit evaluation.
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Indicators
Chi Square
Comparative Fit Index
Relative Fit Index (RFI)
Incremental Fit Index
Tucker Lewis Index (TLI)
RMSEA
PCLOSE
ECVI
Hoelter (0.05)
Table 4
Model Fit Evaluation
Value
Criteria
749
(0.330)
Probability > 0.05
0.996
> 0.95
0.804
Value close to 0.95
0.996
Value close to 0.95
0.996
Value close to 0.95
0.01
<0.05
1
>0.5
< ECVI Independent Model
5.61
(21.74)
240
> 200
The chi Square value is used as fit indicators of model as a whole. From that
table, it can be concluded that model as a whole having fit with sample data.
Consistent with chi square, another goodness-of-fit measure, also showing that
hypothesized model has been fit with sample data. From aspect of sample
adequacy (Hoelter) it also can be concluded that model was adequately
represent the sample data.
4.5. Regression Result
AMOS presented unstandardized and standardized of regression weights and
probability of each coefficients. I used standardized coefficients as presented in
following table 5.
Table 5
Regression weight and Probability
Regression
Coefficient Probability Hypothesis Decision
H1
Accepted
PC
SAC
0.425
0.000
H2
Rejected
PC
PS
0.110
0.619
H3
Accepted
SAC
RA
0.574
0.000
H4
Accepted
ES
PC
1.108
0.000
H5
Rejected
ES
RA
0.036
0.559
H6
Rejected
PS
ES
0.325
0.113
H7
Accepted
PS
RA
0.419
0.000
Ref:
PC : perception of corruption existence
SAC: support to anti corruption program
RA : Risk Assessment
ES: Ethical sensitivity
PS: Professional Skepticism
That table can be interpreted that except for regression between perception of
corruption to professional skepticism, ethical sensitivity and risk assessment
and professional skepticism to ethical sensitivity, all regression coefficient is
significant. The hypothesis testing The discussion for this result will be
presented in following section.
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
5. Summary and Conclusions
The first hypothesis is trying to explore relationship between perception of
corruption existence and attitude to support anti corruption program. From
above table, it is shows that there is positive relationship between perception
toward corruption with attitude to support anti corruption program. According to
psychological model developed by Rest (1986), when making individual ethical
decision making, the first stages that individual proceeded is awareness about
moral dilemma is exist. This finding also is consistent with Jones (1991) that if
auditor is perceived about ethical issues, they will behaves ethically. This
finding as supported the recent ethical theory about the relationship between
perceived issues of ethic will affect individual ethical behavior.
The second hypothesis concerning with the effect of perception of corruption
existence on professional skepticism. Nelson’ model of determinants of
professional skepticism (Nelson 2009) depicted that skeptical judgment is
affected by evidential input such high risk of corruption environment. From that
perspective, theoretically perception about corruption existence will affect
professional skepticism. This study not supported the proposition that if auditor
perceive that corruption is exist in his environment, auditor professional
skepticism will be higher. This unfavorable finding may be
because
government internal auditor capabilities is low on detecting corruption as cited
in research background. Future investigation about effect of corruption
perception on professional skepticism may conducted by separating expert and
novice internal auditor.
The second stage after awareness about existence of moral dilemma is the
judgment about what course of action to take. When individual has an
awareness about moral dilemma, he will arrange about what action that must be
taken when facing ethical dilemma situation. In investigating hypothesis no. 3,
the SEM analysis showing that when auditors are support to anti corruption
programs, they will anchoring high risk assessment (coefficient is 0.574, P value
is 0.00). This finding providing a support to Rest’s model, and consistent with
prior research (Jones 1991; Jones, Massey & Thorne 2003; Rest 1986). This
result also confirm Abdolmohammadi & Owhoso (2000) Dickerson’s (2009) and
Lam & Shi (2007) finding that when making ethical decision making in this case
is risk assessment, auditor is heightened by the extent of social agreement
surrounding the ethical issues.
The fourth hypothesis is explaining effect of ethical sensitivity on perception of
corruption existence. The results confirm that proposition that if auditor having
higher ethical sensitivity, he will perceive higher about corruption existence in
his environment especially with high risk of corruption environment. This result
on supporting theoretical framework about Ethical sensitivity as the ability to
identify the salient aspect of ethical dilemma that involves ability to see the
implication of action outside one’s environment within the context of broader
social picture. This result is consistent with Shaub 1989, Sweny 1995, Dauglas,
Davidson, and Schwartz, 2001, about effect of ethical sensitivity on perception
about ethical issues in this case is consideration about corruption existence.
In the country that most afflicted with corruption such as Indonesia, government
internal auditor must have ethical sensitivity that will effect on auditor response
to red flags. From table 5, it shows that coefficient of regression is 0.036 with
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
non significant probability. This result is not consistent with prior research
Ziegenfuus (2001) finding that auditor ethical sensitivity to ethical issues have
positive effect on auditor assessment on fraud and corruption risk. The
difference finding of this study compared with prior study may be because
Indonesia’ internal auditor work in a culture that permissive to corruption
activities.
Professional skepticism is trait attribute of professional auditor especially when
conducting audit task in high risk of corruption. By having professional
skepticism auditor will evaluate his environment critically which is showing
ethical sensitiveness. The regression coefficient for this prediction is 0.325 and
not significant probability. This finding is not consistent with previous research
finding (Valentine and Page, 2006) that professional skepticism has a positive
effect on ethical sensitivity. The unsatisfactory result is may be coming from
hopeless expectation of government auditor internal because there is no
improvement in corruption reduction activities. When internal auditor have been
hopelessness about anti corruption activities, it will make auditor apathetic on
his environment issues of corruption.
The last analysis concern with effect of professional skepticism on risk
assessment, with the result of regression coefficient is 0.419 with significant
probability, showing that there is positive effect of professional skepticism on
risk assessment. This study finding is consistent with Payne and Ramsay’
(2005) result about the positive effect of professional skepticism on risk
assessment. This finding corroborating the theory and auditing standard about
the importance of professional skepticism in performing audit task.
This current research reported about the multiple relationship among corruption
awareness, as measured by perception about corruption existence and support
to anti corruption program, ethical sensitivity, professional skepticism and risk
assessment of corruption. There are positive effect of perception about
corruption existence on support to anti corruption program, support to anti
corruption program on risk assessment, ethical sensitivity on perception
about corruption existence, and professional skepticism on risk assessment.
Analysis of three hypothesis, the result is reject the proposition about the effect
of perception about corruption existence on professional skepticism, ethical
sensitivity on
perception about corruption existence, and professional
skepticism on ethical sensitivity.
The study suffers from several limitations. The results of the current study
cannot be generalized to all government internal audit office, and experience
and expertise levels of internal auditors. This study only employing Indonesia’
government internal audit office from three province where there are 34
province with rich of culture each province. Sample size may be increased both
in number of province included and in number of sample, in order to achieve
generalization of the result. This study not separate experience and non
experience level of internal auditor which future research should consider
number of hour or years in audit engagement. Finally this study not divide
auditor into level of expertise such certification of auditor. Future research may
involved level of expertise of internal auditor (expert vs. novice) in defining
multiple relationship of variables in this study.
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Proceedings of 3rd Asia-Pacific Business Research Conference
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