Abstract The internal auditor serves an important and valuable role in an organization by enhancing the reliability of its accounting, management and control systems. However, because the internal auditor holds a dual allegiance to the internal auditing profession and to the management of an organization, a critical issue facing the individual auditor is whether or not to blow the whistle. In this study, whistle-blowing involves reporting audit findings to parties outside the normal chain of command, when such findings can potentially harm the reputation or profitability of the company. This paper examines the internal auditor's perceptions of whistle-blowing within the context of his or her level of moral reasoning as measured by the Defining Issues Test (DIT). This experiment required 106 internal auditors to predict whether or not another person would engage in a whistle-blowing act under two different sets of conditions. The first set of conditions concerned the position of the individual discovering a fraud and the second dealt with the nature of the retaliation posed against the whistle-blower. The task was presented in the third-person to minimize potential self-reporting bias that often accompanies studies of ethical issues (see Ponemon and Gabhart 1990; Rest 1986). Findings reveal that internal auditors with relatively low levels of moral reasoning as measured by DIT scores were unlikely to predict whistle-blowing as a means for disclosing wrongdoing. This result is especially prominent when the probable retaliation meant job termination for the whistle-blower. Findings also indicate that the organizational position of the individual contemplating the whistle-blowing act influences internal auditors' predictions, with external auditors considered most likely to act, internal auditors next, and marketing analysts least likely to act. The implications and limitations of these findings for the practice and theory of auditing are provided.
Sr. et al. (Sun,) studied this question.