EXAMINING ETHICAL AWARENESS AND PROFESSIONAL COMMITMENT IN PREDICTING FINANCIAL STATEMENT FRAUD IN RURAL BANKS: THE MODERATING ROLE OF ETHICAL DILEMMAS
DOI:
https://doi.org/10.18623/rvd.v23.5716Keywords:
Ethical Awareness, Professional Commitment, Ethical Dilemma, Fraud Financial StatementsAbstract
This study examines whether ethical awareness and professional commitment help reduce financial statement fraud in Rural Banks in Bali Province, Indonesia, and whether ethical dilemmas moderate those relationships. Grounded in ethical behavior and professional identity perspectives, the study adopts a quantitative approach using purposive sampling of accounting staff working in Rural Banks across Bali Province. The final sample consisted of 105 respondents, and the data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) with WarpPLS 8.0. The findings show that ethical awareness lowers the tendency to engage in fraudulent financial reporting, whereas professional commitment has a weaker effect. Ethical dilemmas also strengthen the relationship between ethical awareness and financial statement fraud, indicating that the ability to recognize moral issues becomes more crucial when employees face conflicting values and competing pressures. However, ethical dilemmas do not significantly alter the relationship between professional commitment and fraud. This study makes three contributions: extending empirical evidence on financial statement fraud in Rural Banks as community-based financial institutions in developing economies; integrating ethical awareness and professional commitment in one explanatory model; and clarifying ethical dilemmas as relevant boundary conditions with implications for ethics training and governance strengthening to enhance reporting integrity.
References
Ajzen, I. (1991). The Theory of Planned Behavior. Organizational Behavior and Human Decision Process, 50, 179–211.
Almalki, A., Basodan, Y., & Boshnak, H. (2025). The Mediating Role of Conscientiousness in the Relationship Between Auditors ’ Ethical Idealism and Fraud Detection. 2024, 1–24.
Amar, M., Chen, E., Gavious, I., & Weihs, H. (2022). Financial reporting misconduct: Evidence from the field. Finance Research Letters, 47, 102540. https://doi.org/https://doi.org/10.1016/j.frl.2021.102540
Amiram, D., Huang, S., & Rajgopal, S. (2020). Does financial reporting misconduct pay off even when discovered? Review of Accounting Studies, 25(3), 811–854. https://doi.org/10.1007/s11142-020-09548-7
Aranya, N., Polibck, J., & Amernic, J. (1981). An Examination of Professional Commitment in Public Accounting. 6(4), 271–280.
Bérubé, J., & Gendron, Y. (2023). Developing Ethical Sensitivity in Future Accounting Practitioners: The Case of a Dialogic Learning for Final-Year Undergraduates. Journal of Business Ethics, 183(3), 763–781. https://doi.org/10.1007/s10551-021-04947-5
Bierstaker, J., Brink, W. D., Khatoon, S., & Thorne, L. (2024). Academic Fraud and Remote Evaluation of Accounting Students : An Application of the Fraud Triangle. Journal of Business Ethics, 195(2), 425–447. https://doi.org/10.1007/s10551-024-05628-9
Brazel, J. F., Leiby, J., & Schaefer, T. J. (2025). Who Rewards Appropriate Levels of Professional Skepticism? Journal of Business Ethics, 196(2), 439–450. https://doi.org/10.1007/s10551-024-05732-w
Cade, N. L., & Gunn, J. L. (2025). Measuring the Prevalence of Earnings Manipulations : A Novel. 63(1). https://doi.org/10.1111/1475-679X.12578
Cremer, D. De, & Moore, C. (2020). Toward a Better Understanding of Behavioral Ethics in the Workplace. Annual Reviews, 7, 369–393.
Emler, N., Tarry, H., & James, A. St. (2007). Post-conventional moral reasoning and reputation. Journal of Research in Personality, 41(1), 76–89. https://doi.org/https://doi.org/10.1016/j.jrp.2006.02.003
Fang, Z., Jung, W. H., Korczykowski, M., Luo, L., Prehn, K., & Xu, S. (2017). Post-conventional moral reasoning is associated with increased ventral striatal activity at rest and during task. Scientific Reports, December 2016, 1–11. https://doi.org/10.1038/s41598-017-07115-w
Fein, E. C., Tziner, A., & Vasiliu, C. (2023). Perceptions of ethical climate and organizational justice as antecedents to employee performance: The mediating role of employees’ attributions of leader effectiveness. European Management Journal, 41(1), 114–124. https://doi.org/https://doi.org/10.1016/j.emj.2021.11.003
Fiolleau, K., & Kaplan, S. E. (2017). Recognizing Ethical Issues: An Examination of Practicing Industry Accountants and Accounting Students. Journal of Business Ethics, 142(2), 259–276. https://doi.org/10.1007/s10551-016-3154-2
Fornell, C., & Larcker, D. F. (1981). Evaluating Structural Equation Models with Unobservable Variables and Measurement Error. Journal of Marketing Research, 18(1), 39–50. https://doi.org/10.1177/002224378101800104
Forsyth, D. (1980). A Taxonomy of Ethical Ideologies. Journal of Personality and Social Psychology, 39(1), 175–184.
Habbe, A. H., Kusumawati, A., Rura, Y., & Muda, I. (2020). Cognitive Moral Development, Organizational Situation and Ethical Decision Making in Business and Accounting. 11(5), 93–104. https://doi.org/10.5430/ijfr.v11n5p93
Hair, J. F., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). Evaluation of the Structural Model. In: Partial Least Squares Structural Equation Modeling (PLS-SEM) Using R. Classroom Companion: Business. Springer, Cham. In Structural Equation Modeling: A Multidisciplinary Journal (Vol. 30, Issue 1).
Hair, J. F., Ringle, C. M., & Sarstedt, M. (2011). PLS-SEM: Indeed, a Silver Bullet. Journal of Marketing Theory and Practice, 19(2), 139–152. https://doi.org/10.2753/MTP1069-6679190202
Hall, R. H. (2014). Professionalization and Bureaucratization. American Sociological Review, 33(1), 92–104.
Hidajat, T. (2020). Rural banks fraud: a story from Indonesia. Journal of Financial Crime, 27(3), 933–943. https://doi.org/10.1108/JFC-01-2020-0010
Ho, K.-C., Lee, S.-C., & Sun, P.-W. (2022). Disclosure quality, price efficiency, and expected returns. The North American Journal of Economics and Finance, 59, 101573. https://doi.org/https://doi.org/10.1016/j.najef.2021.101573
Houqe, M. N., Ahmed, K., & Zijl, T. Van. (2017). Audit Quality, Earnings Management, and Cost of Equity Capital: Evidence from India. International Journal of Auditing, 189(21), 177–189. https://doi.org/10.1111/ijau.12087
Huda, N., Mat, B., Zaini, F. B., & Binti, K. (2026). The Relationship between Ethical Awareness and Good Governance among Public Sector Leader in Contemporary Organization : A Holistic Approach. 16(2), 146–158.
Hunt, N. C., Curtis, M. B., & Rixom, J. M. (2022). Financial priming, psychological distance, and recognizing financial misreporting as an ethical issue: The role of financial reporting responsibility. Accounting, Organizations and Society, 102, 101349. https://doi.org/https://doi.org/10.1016/j.aos.2022.101349
Ishwara, P., & Mekonnen, N. (2024). Ethical decision-making dynamics : insights from professional accountants. Cogent Business & Management, 11(1). https://doi.org/10.1080/23311975.2023.2301138
Ishwara, P., & Naod, M. (2024). Moral intensity and ethical decision-making: a combined importance-performance map analysis for professional accountants. International Journal of Ethics and Systems. https://doi.org/10.1108/IJOES-05-2024-0120
Jiang, X., & Xin, B. (2022). Financial Reporting Discretion, Managerial Myopia, and Investment Efficiency. The Accounting Review, 97(2), 291–316. https://doi.org/10.2308/TAR-2017-0342
Johari, R. J., Sanusi, Z. M., & Zarefar, A. (2019). Auditor s Ethical Judgments: The Influence of Moral Intensity, Ethical Orientation and Client Importance. International Journal of Financial Research, 10(3), 77–87.
Johnson, E. N., Lowe, D. J., & Reckers, P. M. J. (2021). J . Account. Public Policy: The influence of auditor narcissism and moral disengagement on risk assessments of a narcissistic client CFO. Journal of Accounting and Public Policy, xxxx, 106826. https://doi.org/10.1016/j.jaccpubpol.2021.106826
Jones, T. M. (1991). Ethical Decision Making by Individuals in Organizations: An Issue-Contingent Model. Academy of Management, 16(2), 366–395.
Khan, M. A. (2024). Financial Reporting Quality and Investment Efficiency : A Transnational Evidence. 18(2), 285–305.
Kock, N. (2022). WarpPLS user manual : Version 7.0. In ScriptWarp Systems.
Kock, N., & Hadaya, P. (2018). Minimum sample size estimation in PLS-SEM: The inverse square root and gamma-exponential methods. Information Systems Journal, 28(1), 227–261. https://doi.org/10.1111/isj.12131
Kohlberg, L. (1958). The development of modes of moral thinking and choice in the years 10 to 16 (Vol. 2).
Kohlberg, L. (1981). Essays on Moral Development. New York: Harper & Row.
Kon, Z. S., Lim, Y. H., Choong, Y. O., Paloosamy, J. R., & Low, B. T. (2024). The influence of pressure on intention to commit fraud: the mediating role of rationalization and opportunities. Asian Journal of Business Ethics, 13(1), 175–195. https://doi.org/10.1007/s13520-024-00192-x
Liu, F., & Shen, M. (2025). Legal compliance costs and financial reporting quality: The moderating role of financial market volatility. Finance Research Letters, 86, 108873. https://doi.org/https://doi.org/10.1016/j.frl.2025.108873
Lowe, D. J., Reckers, P. M. J., & Sauciuc, A. K. (2023). The Influence of Professional Commitment and Rationalization-Discrediting Interventions on Unethical Audit Decisions. AUDITING: A Journal of Practice & Theory, 42(3), 87–106. https://doi.org/10.2308/AJPT-2020-068
Marzuki, M., & Safeei, R. (2025). The Role of Accounting Ethics Education in Shaping Professional Integrity : Exploring the Mediating Effect of Ethical Reasoning on Ethical Decision-Making (Issue BizFAME 2024). Atlantis Press International BV. https://doi.org/10.2991/978-94-6463-827-1
McCrae, R. R., & Costa, P. T. (1987). Validation of the Five-Factor Model of Personality Across Instruments and Observers. 52(1), 81–90.
Oboh, C. S., Obigbemi, I. F., & Fagboro, D. G. (2025). Moral intensity and fraudulent financial reporting rationalization: evidence from a developing African country. Journal of Accounting in Emerging Economies, 16(1), 86–114. https://doi.org/https://doi.org/10.1108/JAEE-10-2024-0468
Otley, D. T. (1980). The contingency theory of management accounting: Achievement and prognosis. Accounting, Organizations and Society, 5(4), 413–428.
Otley, D. T. (2016). The contingency theory of management accounting and control: 1980-2014. Management Accounting Research, 31, 45–62. https://doi.org/10.1016/j.mar.2016.02.001
Pan, P., & Patel, C. (2024). Do Internal Auditors Make Consistent Ethical Judgments in English and Chinese in Reporting Wrongdoing? Journal of Business Ethics, 194(2), 433–453. https://doi.org/10.1007/s10551-024-05629-8
Poje, T., & Groff, Z. M. (2022). Mapping Ethics Education in Accounting Research : A Bibliometric Analysis. Journal of Business Ethics, 179(2), 451–472. https://doi.org/10.1007/s10551-021-04846-9
Rogošić, A., & Perica, I. (2023). Affective professional commitment and accounting ethics principles : examining the mediating role of the code of ethics. Economic Research-Ekonomska Istraživanja, 36(1), 480–498. https://doi.org/10.1080/1331677X.2022.2077791
Roy, A. (2024). Ethical Culture in Organizations : A Review and Agenda for Future Research. 1(January), 97–138. https://doi.org/10.1017/beq.2022.44
Rustiarini, N. W., Yuesti, A., & Gama, A. W. S. (2020). Public accounting profession and fraud detection responsibility. Journal of Financial Crime, 28(2), 613–627. https://doi.org/10.1108/JFC-07-2020-0140
Sarstedt, M., Hair, J. F., Ringle, C. M., & Liengaard, B. D. (2022). Progress in partial least squares structural equation modeling use in marketing research in the last decade. January, 1035–1064. https://doi.org/10.1002/mar.21640
Seifert, S. G., LaMothe, E. G., & Schmitt, D. B. (2023). Perceptions of the Ethical Infrastructure, Professional Autonomy, and Ethical Judgments in Accounting Work Environments. Journal of Business Ethics, 182(3), 821–850. https://doi.org/10.1007/s10551-021-05001-0
Sennetti, J. T., & Shawver, T. J. (2015). How Does Moral Intensity Impact the Moral Judgments and Whistleblowing Intentions of Professional Accountants. HCBE Faculty Articles, 26–28.
Simon, O., & Kanyunyuzi, S. S. (2025). Accounting Ethics and Quality of Financial Reporting : A Case of District Local Governments in Northern Uganda. 13(4), 2589–2615. https://doi.org/10.4236/ojbm.2025.134137
Singh, K., Milan, P. R., & Jaiswal, A. (2025). Behavioral Accounting and Ethical Decision-Making in Financial Reporting. 04(07), 1363–1369. https://doi.org/10.58806/ijsshmr.2025v4i7n08
Tang, C., Chen, Y., Wei, W., & Newman, D. A. (2023). Under Pressure: LMX Drives Employee Unethical Pro-organizational Behavior via Threat Appraisals. Journal of Business Ethics, 195(4), 799–812. https://doi.org/10.1007/s10551-023-05534-6
Tang, T. L. (1992). The meaning of money revisited. 13(January 1991), 197–202.
Vousinas, G. L. (2017). Advancing theory of fraud: The S.C.O.R.E. Model. Journal of Financial Crime, 26(1), 372–381.
Walter, R., Montañez, C., Eduardo, R., Egoávil, V., C, P. V., Dante, V., Vera, A., Jorge, J., Urdiales, Z., F, C. O. F., & López, C. (2023). Accounting Ethics, Financial Reporting Focused On Financial Frauds : A Bibliometric Analysis. 1–17.
Yulianti, Y., Zarkasyi, M. W., Suharman, H., & Soemantri, R. (2023). Effects of professional commitment, commitment to ethics, internal locus of control and emotional intelligence on the ability to detect fraud through reduced audit quality behaviors. Journal of Islamic Accounting and Business Research, 15(3), 385–401. https://doi.org/10.1108/JIABR-02-2021-0076
Zhu, J. N. Y., Lam, L. W., Liu, Y., & Jiang, N. (2023). Performance Pressure and Employee Expediency: The Role of Moral Decoupling. Journal of Business Ethics, 186(2), 465–478. https://doi.org/10.1007/s10551-022-05254-3
Downloads
Published
How to Cite
Issue
Section
License
I (we) submit this article which is original and unpublished, of my (our) own authorship, to the evaluation of the Veredas do Direito Journal, and agree that the related copyrights will become exclusive property of the Journal, being prohibited any partial or total copy in any other part or other printed or online communication vehicle dissociated from the Veredas do Direito Journal, without the necessary and prior authorization that should be requested in writing to Editor in Chief. I (we) also declare that there is no conflict of interest between the articles theme, the author (s) and enterprises, institutions or individuals.
I (we) recognize that the Veredas do Direito Journal is licensed under a CREATIVE COMMONS LICENSE.
Licença Creative Commons Attribution 3.0
