269-2nd ICBER 2011 PG 1428-1448 Accountants Ethical Code

8/2/2019 269-2nd ICBER 2011 PG 1428-1448 Accountants Ethical Code

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INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH (2nd

ICBER 2011) PROCEEDING

1428

THE ACCOUNTANTS ETHICAL CODE OF CONDUCT FROM AN ISLAMIC

PERSPECTIVE: CASE IN YEMEN

Al-Hasan Al-Aidaros([email protected])PhD Student in Accounting

College of Business, Universiti Utara Malaysia

Kamil Md. Idris([email protected])

Associate Professor


Faridahwati Mohd. Shamsudin

([email protected])Senior Lecturer


ABSTRACT

An ethical code of conduct is developed to guide behaviors of members in or of organizations. Accountants, in this

context, are not an exception. The availability of such ethical code of conduct is extremely important for both

accountants and users of accounting information. However, currently in Yemen, there is no ethical code of conduct

for Yemeni professional accountants. Hence, a study was conducted to develop an ethical code of conduct for Yemeni

professional accountants from an Islamic perspective, given that Yemen is an Islamic country. In particular, the studysought to address the question of what constitutes the ethical code of conduct among Yemeni professionalaccountants. To address the question, data were collected from 386 users of accounting information in four main

cities of Yemen i.e. Sanaa, Hadhramout, Taiz, and Aden. The participants were asked to indicate their expectations

about what should be included in the ethical code conduct for Yemeni professional accountants. The study employed

interdependency analysis, specifically exploratory factor analysis, to reveal the domains of ethical code of conduct.

Results show that the ethical code of conduct consists of seven constructs, i.e. acting responsibly, honoring the publictrust, acting with integrity, maintaining objectivity and independence, exercising due care, following the limits of

scope and nature of services, and complying with Islamic principles. The findings could be used by policy makers to

develop an ethical code of conduct for Yemeni accountants to assist them with their professional work. In addition,

recommendations for future research and the limitations of the study are highlighted.

Keywords: Ethical code of conduct, Professional accountants, Islamic perspective, Yemen

Paper type: Research paper


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INTRODUCTIONResearchers found that accountants operate within a world of change in which corporate collapses, business

impropriety, regulatory failure and environmental disasters are prevalent. It is said that the professional accountants

were partly responsible in the collapse of several companies in the world such as Enron, WorldCom, Global Crossing

in the United States, Parmalat in Italy, One-Tel in Australia, Almanakhah Market in Kuwait, and the Yemeni NationalCommercial Bank in Yemen, because their role is to detect mistakes, frauds and to make sure that financial

information, i.e. balance sheet and income statement, are prepared according to accounting and moral/ethical

standards (Martin, 2007). It can be argued that accountants need to have a thorough appreciation of the potential

implications of professional and management decisions, and an awareness of the pressures in observing and

upholding ethical standards, which may confront individuals involved in a decision making process (Ahadiat, 1993;

Burks, 2006; Mohammed, 2008). In this respect, professional accountants have responsibility to protect stakeholdersby presenting fair and independent opinions about financial statements, because if they do not do so, stakeholders

may not be able to derive at a valid conclusion and hence make a correct decision.

As the name suggests, an ethical code of conduct is defined by the International Federation of Accountants (IFAC) as:

principles, values, standards, or rules of behavior that guide the decisions, procedures and systems of an organizationin a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents

affected by its operations (IFAC, 2007). An ethical code of conduct is important because stakeholders expect

professional accountants to comply with it (Delaney, 2005). Ziegenfuss and Singhapakdi (1994) found that the ethical

code of conduct influences professional accountants because they believe it guides their work. The ethical code of

conduct is also said to have more effect on professional accountants than personal moral philosophies (Delaney,2005). Professional accountants, like other professionals, need to comply with the ethical code of conduct because

non-compliance results in penalties (England, 1998). So, the ethical code of conduct is an effective tool that can

increase public trust in the financial reports prepared by professional accountants (England, 1998). Whilst the main

objective of the ethical code of conduct is to uphold the integrity of accounting profession, it benefits stakeholders as

well. Users of accounting information can make decisions by using financial reports that are reliable, and professionalaccountants can use it as a guide to help them in their work (Street, 2002).

Because of its significance in guiding behaviors, an ethical code of conduct for professional accountants in Yemen

can contribute toward improving the economic situation of the country. But no such ethical code of conduct for

Yemeni accountants exists (Bamashmos, 2003). Because Yemen is a Muslim country governed by Islamic Shariahlaws, professional accountants here are presumed to have good ethical conducts. However, to what extent this claim is

valid and holds true is subject to a scientific investigation. And this is what the present study intends to achieve. In

particular, this study attempts to reveal what should constitute the ethical code of conduct among Yemeni professional

accountants from an Islamic perspective.

PROBLEM STATEMENTAccountants behavior affects the public through the preparation of financial reports. Users of financial report,

especially decision makers, expect professional accountants to be highly competent, reliable, and objective. Those

who work in the field of accounting must not only be well qualified but must also possess a high degree of

professional integrity (Burks, 2006; Mohammed, 2008). Therefore, accountants ethics are very important because the

main role of accountants is to provide useful information to users (Rahman, 2003).

At present there is no ethical code of conduct for Yemeni professional accountants in Yemen (Al-Ariqi, 2007;

Alshami, 2009). The absence of this code allows accountants to interpret what constitute ethics according to their own

personal interests or values (Mohammed, 2008). It has been said that Yemeni accountants accept bribes (Hasan,

2010), do not act responsibly to users of accounting information (Baahroon, 2010), are careless about public interest


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(Zaid, 2010), work in collaboration with others (Baantar, 2010), and sometimes do not follow Islamic principles (Ali,

2010; Mohammed, 2010). As a result, reports produced by Yemeni accountants may be defected and unreliable.

Because there is no ethical code of conduct for Yemeni professional accountants (Alshami, 2010), Yemeni

government cannot force accountants to follow any specific behaviors.

Users of accounting information, i.e. investors, managers, members of board of directors, members of Yemeni

accountants association, and legislators and senior officials in Yemeni government believe that an ethical code of

conduct for Yemeni professional is imperative (Alkebsi, 2010; Alshami, 2010). This is because they will not be able

to make a right and good decision without reliable, accurate, and trusted accounting information (Alaidaros, 2010;

Ibrahim, 2010; Mustafa, 2010). Besides, the users feel that they have no legal recourse for mistakes done by

accountants because there is no ethical code of conduct that specifies penalties for any wrongdoing (Bageneed, 2010;Bendool, 2010).

The Yemeni government is trying to meet several conditions and terms of Arab Gulf countries in order to enter the

Gulf union (YACPA, 2010). Making an ethical code of conduct for professional accountants available is one of the

terms that need to be met (Alkebsi, 2010; Alshami, 2010). Given these contexts, it is necessary to know whatconstitutes ethics under the Islamic environment like Yemen. This study will develop accountants ethical code of

conduct for the benefit of users of financial reports.

PREVIOUS STUDIES ON THE ETHICAL CODE OF CONDUCTAn ethical code of conduct can be understood in different ways. An ethical code of conduct is seen as a socialagreement between the public and accountants. The accountants ethical code of conduct is established to influence

positively users of accounting information, i.e. investors, employees, lenders, suppliers, customers, government, and

management (Payne & Landry, 2005). Therefore, in this perspective, accountants have responsibility to perform with

the highest level of integrity and objectivity (Bay, 1997). Alternatively, the ethical code of conduct is a means for the

accounting profession to regulate its own members and the code is thus viewed as the accountants way of self-protection (Parker, 1994). In addition, the ethical code of conduct is seen as a required component of accountants job

(Bay, 1997). Finally, the ethical code of conduct is viewed as an accountants attempt to offer for them guiding

principles to assist them in formulating correct choices in complex circumstances (Brecht, 1991).

The first major code for the accounting profession is the ethical code of conduct established by the American Instituteof Certified Public Accountants (AICPA) (Abo-ahmeed, 2006; Brown, 1999; Brown et al., 2007; Duska & Duska,

2003; Mele, 2005; SOCPA, 2009; Venezia, 2005). Several countries such as Taiwan, Canada, Saudi Arabia, and

Jordan, have developed their own codes by using the AICPA code as a prototype. In line with this development, the

present study used the AICPA code as a basis for organizing thoughts as well as developing accountants ethical code

of conduct from an Islamic perspective in Yemen.

The AICPA ethical code of conduct consists of six principles. These are explained and discussed below:

Acting responsibly means accountants, in carrying out their responsibilities as professionals, should exercise

sensitive professional and moral judgments in all their activities (AICPA, 2009). From an Islamic perspective,

however, the strength of mind of what is useful and what is harmful cannot be left to human being reasoningalone. Human beings reasoning should be exercised within the Islamic framework (Al-Qaradawi, 1985). This

means that Islam recognizes the role of reason in theorizing morality and ethics only in a manner that confirms

human existence. The reason for that is because the natural limitations of human beings posit a strong reason for

Divine direction particularly in determining what is right and what is wrong. According to Al-Qaradawi (1985),

the rational faculties can and should only be used to match and strengthen ethics and morality defined by Islamic


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Shari`ah. Within an Islamic framework, responsibilities can be divided into three groups. First is responsibility

towards God, who created human beings and provided them with resources for their livelihoods. Second is

responsibility towards themselves. Third is responsibility towards society which involves maintenance of clients

rights and goods, and treating everything that belongs to a consumer, his honor, his wealth and his blood, as

sacrosanct (Saeed, Ahmed, & Mukhtar, 2001). In this context, an accountant must uphold all responsibilitiestowards God, him/herself, and society. Allah (s.w.t) said: Then shall anyone who has done an atoms weight of

good, see it. And anyone who has done an atoms weight of evil, shall see it (al-Quran, 99:7/8).

Honoring the public trustis means accountants should accept the obligation to act in a way that will serve the

public interest, honor the public trust, and demonstrate commitment to professionalism (AICPA, 2009). Islam

agrees with the principle of public interest and considers it more important than an individual interest (Al-

Qaradawi, 1994). However, a professional accountant must make sure public interests are in line with Islamic

Shariah. This is because some societies, according to relativism theory, consider some actions such as bribery as

ethical. In Islam, the only one who really has full knowledge about what is right and wrong is Allah (s.w.t). TheQuran (58:7) states: Allah has full knowledge of all things. Even if the majority of people in this world agree

that taking bribe is acceptable for the public interest, Muslims accountants condemn this act as not being ethical

and Islamic. Allah (s.w.t) said: if you follow the common run of those on earth, they will lead you away from the

way of Allah; they follow nothing but conjecture (al-Quran, 6:116).

Acting with integrity is to maintain and broaden public confidence. Accountants should perform all professional

responsibilities with the highest sense of integrity. Islam supports this principle, i.e. integrity, for all professionals

and non-professionals (Mohammed, 2005). Moreover, Muslims must behave with integrity by holding Iman(faith), as it is the key that protects and increases a persons integrity (Al-Qaradawi, 1994, 1985; Mawdudi, 1977).

In Islam, a person has to behave in accordance to his/her Islamic beliefs as mentioned in the Quran.

Maintaining objectivity and independence means that an accountant should be objective in his/her work and be

free from conflicts of interest in discharging his/her professional responsibilities. An accountant in public practice

should be independent in fact and appearance when providing auditing and other attestation services (AICPA,

2009). Islam also requires that accountants be objective and exercise independence in their opinions without any

bias (Mohammed, 2005). Allah (s.w.t) has ordered Muslims to behave fairly with every Muslims and non-Muslims even if the person may hate him/her for doing justice. The Quran said justice is the shortest way to

achieve Iman (faith). Be obvious determinedly for Allah, as witnesses to fair dealing, and do not let the hate of

others to you make you swerve to wrong and depart from justice. Be just: that is next to faithfulness (al- Quran,

5:8). Besides, Muslims are requested to verify any information received especially if it may affect the others

negatively. Allah (s.w.t) said: If a wicked person comes to you with any news, ascertain the truth, lest you harm

people unwittingly and afterwards become full of repentance for what you have done (al-Quran, 49:6). In otherword, before make any judgment, a professional accountant must make sure that he/she has verified the

information as correct and accurate.

Exercising due care by means an accountant should observe the professions technical and ethical principles, try

hard continually to develop competence and the quality of services, and discharge professional responsibility to

the best of the accountants ability (AICPA, 2009). Islam agrees with the general idea of due care principle(Mohammed, 2005). But there are other Islamic issues related to the due care principle that are not mentioned in

the AICPA code. Firstly, accountants should perform their duty beyond the expectation of clients because for allMuslim accountants life should be perfect as possible (Al-Qaradawi, 1994). Also, accountants believe that reward

in the next life is more important than the reward in this life such as fees or salary. Thus, professional accountants

are expected to carry out their work as best as possible not for the sake of salary or fees only. However, that does


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not mean accountants should be paid lower than what they deserve. Justice must be exercised in determining fees

and rules (Mohammed, 2005). In other words, Muslim must emulate the prophet Muhammads way of life in all

aspects be they economical, political, or social. Allah (s.w.t) has promised those who make perfect their life with

reward in hereafter (al-Quran, 16:30, 10:26). Also, the prophet Muhammad reported that: when any of you

perform a work: Allah wants him to do it perfectly (Mohammed, 2005).

Following the limits of scope and nature of services means that accountants in public practice should observe the

principles of the code of professional conduct in determining the scope and nature of services to be provided

(AICPA, 2009). In Islam, the government and the experts are the two groups that are legitimate in identifying the

scope and nature of services. With regard to the first group, Allah (s.w.t) has ordered Muslims to obey their

leaders. Besides Allah and his prophet Muhammad. The Quran (4:59) said: you who believe: Obey Allah, and

obey the messenger, and those charged with authority among you. However, to obtain obedience, the

government should practice Islamic principles throughout (al-Quran, 4:59). In regard to the second group, i.e.

accounting organization, Allah (s.w.t) said that Muslims consult the experts who have knowledge about the thingthat they do not know (al-Quran, 21:7). In general, Islam agrees with this principle, i.e. scope and nature of

services, except that the accountants must reject any work if it is against Islamic principles (al-Quran, 5:47). The

scope and nature of services must be within the acceptable limits of Islam (al-Quran, 5:44/45).

In brief, the code of professional accountants serves a variety of purposes both to professional accountants andsociety. It is intended to appeal to such diverse interests of customers, the public, the courts, business community, the

accounting profession, and the government. These interests will converge and at other times, diverge. Therefore, the

code must anticipate the individualistic and pluralistic relationships that exist among any or all of these interests. The

above six principles are related to the four philosophies of Western ethical theories: egoism, utilitarianism,

deontology, and virtue ethics. Western ethical philosophies provide a supplemental theoretical basis for ethicaljudgment in accounting practices. Although each ethical philosophy alone fails to sufficiently guide accountants in

every ethical situation, collectively they provide a menu of principles that accountants can and should consider when

facing ethical dilemmas (Burks, 2006; Velasquez, 2006). However, while Islam generally agrees to the principles laid

out by the AICPAs ethical code of conduct, the code remains incomplete.

HYPOTHESESEthical code of conduct for professional accountants contains the ethical principles and rules accountants must obey

in order to raise the image of the accounting profession in public (IFAC, 2010). In accounting literature, studies refer

to accounting ethics as an ethical code of conduct that accountants should have (Velasquez, 2006). Accounting

organizations such as AICPA and IFAC have established the ethical codes of conduct for professional accountants.

AICPA ethical code of conduct is developed specifically for the USA. But IFAC ethical code of conduct was

developed by taking into account different practices of ethical code of conduct in various countries. Generally, the

ethical code of conduct of AICPA and IFAC are similar. The only difference is that AICPA ethical code of conduct is

broader in scope than the IFAC (Brown, 1999; Brown et al., 2007; Mele, 2005). As a result, AICPA ethical code of

conduct is more applicable to be used as a basis for developing an ethical code of conduct for countries that do not

have codes yet.

Because of its breadth, the researchers used AICPA ethical code of conduct as a basis to develop an Islamic ethicalcode of conduct for Yemeni professional accountants. Although the AICPA ethical code of conduct has been widely

used by many countries, it still has room for continuous improvement especially if it is to apply to Muslim countries.

As discussed earlier is the code not extensive and comprehensive enough from the Islamic perspective. The main

difference is on the basis of identifying what is right and wrong. Islam has a comprehensive point of view (al-Banna,

1940, al-Qaradawi 1996; Yaken, 2006) of ethical issues by taking a full image of all theoretical standards. In addition,


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justice in Islam is not the only basis to differentiate what is right and wrong. Sabr (patience) is another basis that

Islam considers. The Quran said: and if you do catch them out, catch them out no worse than they catch you out: But

if you show patience, that is indeed the best (course) for those who are patient (16:126). Another basis is Ihsan

(better, i.e. treat people better that how they treat you). The Quran said: Nor can goodness and evil be equal. Repel

(evil) with what is better (41:34). However, Islamic principles are not against logical theories even if they aredeveloped by non-Muslim scientists (al-Qaradawi, 1996; Mawdudi, 1977).

The six principles above of AICPA are acceptable from the Islamic perspective. Because the study was conducted in a

Yemen, it is expected that Yemeni professional accountants will behave according to the six principles. In addition,

they are also hypothesized to comply with the Islamic principles, the seventh principle introduced in the new ethical

code of conduct. Thus, the first and second hypotheses are as follows:

H1: The ethical code of conduct for Yemeni professional accountants is complex variable.

H2: The ethical code of conduct for Yemeni professional accountants should constitute at least seven constructs.

H2a: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Acting responsibly.

H2b: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Honoring the public trust.

H2c: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Acting with integrity.

H2d: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Maintaining objectivity and independence.

H2e: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Exercising due care.

H2f: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Establishing limits to the scope and nature of services provided.

H2g: The ethical code of conduct for Yemeni professional accountants should significantly embody the domain

Complying with Islamic principles.

INSTRUMENTATIONTo develop an ethical code of conduct for Yemeni professional accountants, this study has developed the instrument,

(appendix 1), by basing on the instrument of Brown et al. (2007). Brown developed the instrument by using AICPAethical code of conduct as a basis, and by comparing the two main codes of AICPA and IFAC. He used the AICPA

ethical code of conduct because it is broader in scope than the IFAC (Brown, 1999; Mele, 2005). Additional items

that reflect the Islamic perspective are included.

The instrument of ethical code of conduct deals with seven proposed constructs, i.e. acting responsibly, honoring the

public trust, acting with integrity, maintaining objectivity and independence, exercising due care, establishing limits

to the scope and nature of services provided, and complying with Islamic principles. Every construct has a number of

indictors/variables as shown in Table 1.

To make sure participants read each item, one item within every construct is stated in negative form. In other words,

specific items are worded negatively to verify if the participants are responding each item separately (Brown, 1999).


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Table 1

Structure of Ethical Code of Conduct InstrumentSection Contents No. of

indicators

Section one Introduction with instructions

Section two

Construct 1 Acting Responsibly 12

Construct 2 Honoring the public trust 8

Construct 3 Acting with integrity 9

Construct 4 Maintaining objectivity and independence 16

Construct 5 Exercising due care 11

Construct 6 Establishing limits to the scope and nature of services provided 9

Construct 7 Complying with Islamic principles 9

Section three Demographic questions 5

RESULTS

The Response RateThis study used multistage cluster random sampling that involves different groups and different cities (Sekaran, 2003;

Zikmund, 2003). The questionnaires were distributed personally by the researchers to 533 users of accountinginformation in four cities in Yemen, i.e. Sanaa, Hadhramout, Taiz, and Aden. A total of 409 questionnaires were

returned and completed, while 124 questionnaires were unanswered. The completed questionnaires represent a valid

response rate of 72.4 %. But 23 questionnaires were unusable because some respondents did not answer two or moresections of the survey. Some questionnaires were also discarded because of the same answers given to all the

questions by the same subject. For example, some respondents answered strongly agree to all items even though theitems were worded negatively.

The number of valid questionnaires for data analysis is 386. The number of respondents to the number of

items/observed variables is appropriate, i.e. 5:1 (386 respondents to 74 items/observed variables). It can be concluded

that the sample size of this study is sufficient for conducting exploratory factor analysis (EFA) (Hair, Black, Babin, &

Anderson, 2010).

Table 2 shows the sample profile. The majority of the participants were male (83.7 %), while 16.3 % female. The

low percentage of female participants reflects Yemeni culture that sees men as the main breadwinner (Alshami,

2009). In terms of age, the majority of participants was above thirty years old (76.2 %) and had working experiencemore than five years (66.1 %). Half of the participants, i.e. users of accounting information, were government

officers (51 %), while the rest were investors (20.2 %), members of board of directors (15.3 %), members of

Yemeni accountant association (7.8 %), and managers (5.7 %). Consistently, half of the participants were working

with the government sector (50.3 %), private organization (41.7 %), and the rest (8 %) with non-profit


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organizations. Finally, the majority of participants were from Sanaa city (69.9 %), while the rest were from

Hadhramout (16.8 %), Aden (7.1 %), and Taiz (6.2 %).

Table 2

Demographic Profile of the Participants

ReliabilityReliability is the consistency of the measurement or the degree to which an instrument is measured in the same way

each time it is used under the same condition with the same subjects (Nunnally & Bernstein, 1987). The researchers

conducted reliability test to make sure that the items of each construct have high internal consistency. To testreliability, Cronbachs alpha was calculated for each construct. The generally agreed upon lower limit for Cronbachs

alpha is 0.70. However, it may decrease to 0.60 in exploratory study (Hair et al., 2010).

The Cronbachs alpha reliability results show that the five constructs in this study, i.e. acting responsibly, maintaining

objectivity and independence, exercising due care, following the limits of scope and nature of services, and

Variable Frequency Percentages

(%)

Male 323 83.7

Gender Female 63 16.3

Total 386 100

Less than 30 years 92 23.8

30-39 years 170 44.1

Age 40-50 years 86 22.3

More than 50 years 38 9.8

Total 386 100

Less than 5 years 131 33.9

6 - 10 years 128 33.1

Experience 11 - 15 years 42 10.9

16 - 20 years 23 6

More than 20 years 62 16.1

Total 386 100

Investor 78 20.2

Manager 22 5.7

Job Member of board of director 59 15.3

Member of Yemeni accountant association 30 7.8

Government officer 197 51

Total 386 100

Private 161 41.7

Organization Government 194 50.3Non-profit 31 8

Total 386 100

Sanaa 270 69.9

Hadhramout 65 16.8

City Taiz 24 6.2

Aden 27 7.1

Total 386 100


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complying with Islamic principles, have reliability coefficients above 0.70, while two constructs, i.e. honoring the

public trust, and acting with integrity, have reliability coefficients of 0.68. The reliability coefficients for all

constructs are above 0.60, which indicates that the instrument used is acceptable. Table 3 shows the results of

reliability test for the constructs used. Due to poor inter-item correlations and in order to increase reliability of the

instrument, several items were dropped and excluded from any further analysis (Hair et al., 2010).

Table 3

Reliability Analysis Results (N=386)Variable Before

data cleansing

After

data cleansing

No. of

items

dropped

No. items Alpha

value

No. items Alpha

value

Acting responsibly 12 0.62 5 0.75 7

Honoring the public trust 8 0.66 5 0.68 3

Acting with integrity 9 0.64 4 0.68 5

Maintaining objectivity and

independence 16 0.85 11 0.86 5

Exercising due care 11 0.86 5 0.82 6

Scope and nature of services9 0.76 8 0.76 1

Complying with Islamic

principles9 0.76 4 0.82 5

Exploratory Factor Analysis (EFA)Hair et al. (2010) reported that the main function of exploratory factor analysis (EFA) is to identify the underlying

structure among items in the analysis. Exploratory factor analysis (EFA) attempts to discover groupings among items

based on relationships represented in a correlation matrix (Cooper & Schindler, 2003; Zikmund, 2003). Exploratoryfactor analysis (EFA) is a valuable multivariate statistical method for extracting information from large data. When

items are interrelated, the researcher wants ways to handle and manage these items, such as, grouping highly

connected items together with new components, and naming the components that represent each group of items (Hair

et al., 2010). The researchers assumption is that any item within every construct may be connected with other items.

In other words, EFA is a tool to better understand the constitution of the data. It points to nice and simple

relationships that may not have been understandable from assessment of the raw data alone with information about

how many components are required to best represent the data (Hair et al., 2010).

According to Hair et al. (2010), one characteristic of exploratory factor analysis is that the components come from

statistical results, not from theory. This means that the software used in this study, i.e. SPSS, defines the underlying

structure of the data that is based on respondents answers. Accordingly, EFA is conducted without knowing how

many components really exist and which items belong to which construct. The components that emerge will be


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labeled once the analysis is performed. A large number of variables can complicate a study because some items might

measure different aspects of the same underlying variable (Hair et al., 2010). Thus, using EFA will help the

researchers identify the structure of the Islamic ethical code of conduct.

To be acceptable for the EFA, i.e. to make sure that the results of EFA are reliable and valid, the data have to meetseveral standards. These standards are reliability coefficient, anti-image correlations matrix, communality, KMO,

Bartletts test of sphericity, and the cumulative percentages of variance explained. With respect to reliability, a few

items have been deleted.

Anti-image correlations matrix diagonals are the negative matrix values of partial covariance and correlations among

items (Cooper et al., 2003). They reflect the degree to which the factors explain each other. According to the rules ofthumb, anti-image correlations matrix diagonals should be above 0.50 and items with values less than 0.50 must be

excluded from further analysis, by deleting one item at a time, starting with the lowest value, and then recalculating

the anti-image correlations matrix again until all values are above 0.50. In this study, only one item, i.e. item number

8 from the construct honoring the public trust, was deleted and excluded from any further analysis.

The data were also checked for items communality. Communality is the estimate of its shared factor loadings among

the variables as represented by the components derived from exploratory factor analysis (EFA) (Cooper et al., 2003).

Hair et al. (2010) reported that any item that has a communality value of less than 0.50 does not have sufficient

explanation and it should be deleted and excluded from any further analysis. The deleting procedure was carried out

in the same way as what the researchers did with anti-image correlations matrix, which means that the item with thelowest communality value was deleted first. Then the researchers recalculated the communalities for all other items

again until all items have an acceptable level of communality with more than 0.50. The following items are the items

that were deleted and excluded from any further analysis from this study: item number 5 from the construct acting

responsibly, item number 7 from the construct honoring the public trust, four items (number 6, 1, 2, 3) from the

construct acting with integrity, four items (number 9, 8, 4, 3) from the construct maintaining objectivity andindependence, six items (number 8, 9, 3, 1, 7, 4) from the construct exercising due care, item number 2 from the

construct following the limits of scope and nature of services, and four items (number 6, 1, 9, 8) from the construct

complying with Islamic principles.

The next test was the Kaiser-Myer-Olkin (KMO) of Sampling Adequacy and Bartletts test of sphericity. They areboth indicators for evaluating the appropriateness of applying factor analysis (Cooper et al., 2003; Zikmund, 2003).

As shown in Tables 4, 5, 6, 7, 8, 9 and 10, all items for each construct are within the acceptable level. Specifically, the

KMO measure for most items for each construct is above 0.60, which is acceptable, except for one construct, i.e.

honoring the public trust. This measure indicates that high proportion of variance in the items is common variance

and causes the structure components to be established effectively (Hair et al., 2010). As for the Bartletts test of

sphericity, the results are all significant (p value = 0.000).

Tables 4, 5, 6, 7, 8, 9 and 10, present the final results of exploratory factor analysis for every construct. The results

show that the cumulative percentages of variance explained by the components for each construct are reasonable

within the range between 0.59 and 0.80. In general, the results demonstrated that reliability, anti-image correlations

matrix, communality, KMO, Bartletts test of sphericity, and the cumulative percentages of variance explained for

exploratory factor analysis (EFA), are acceptable to be used as a guide to develop the measurement model that can be

examined and confirmed by using confirmatory factor analysis (CFA).


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Hair et al. (2010) reported that only items with factor loadings greater than 0.50 are considered for specifying the

measurement model. The results show that all items have factor loading greater than 0.50 which means all items can

be used to specify the measurement model.

Table 4 shows the results of the exploratory factor analysis (EFA) of the first construct/principle, i.e. actingresponsibly, which has two components. The first component is labeled being responsible toward other auditors and

it has three items. The second component represents being responsible toward information and consists of two

items.

Table 4

Exploratory Factor Analysis for Acting Responsibly

ComponentItem

no

Items

Factor loading

1 2

A professional accountant is expected to...

Being responsible toward

other auditors

res8 Not to make unconfirmed comparisons with the workof other auditors.

0.84

res9 Avoid disapproving other auditors to get their work. 0.71

res7 Not to offer to a client lower audit fees for the

purpose of competing with other auditors.0.71

Being responsible toward

information

res11 Not to be connected with documents that the auditor

thinks it includes false information.0.90

res10 Not to be associated with reports where the auditor

believes it contains misleading statements.0.88

Note: Kaiser-Meyer-Olkin Measure of Sampling Adequacy = 0.69; Variance = 71%; Approx. Chi-Square = 462.163;

df = 10; Sig. = 0.000.

In Table 5 the second construct/principle, i.e. honoring the public trust, shows two components, i.e. providing perfect

services and respecting the job of accounting profession. The first component providing perfect services consists of

three items, while the second component respecting the job of accounting profession consists of two items.


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Table 5

Exploratory Factor Analysis for Honoring the Public Trust

Component

Item

no

Items

Factor loading

1 2


Providing perfect services

pbt3 Provide accurate and excellent services beyond what

is required by the countrys rules..84

pbt2 Offer quality services. .75

pbt4Sign the financial report prepared and specify exactly

what kind of auditing services that have been

performed.

.72

Respecting the job of

accounting profession

pbt6Avoid advertising him/herself or his/her services

through public media such as TV, radio, electronic

websites, and newspapers.

0.89

pbt5 Use clients money, held by the auditor, only for

auditing work purposes.0.81

Note: Kaiser-Meyer-Olkin Measure of Sampling Adequacy = 0.66; Variance % = 73; Approx. Chi-Square =

549.102; df= 10; Sig. = 0.000

The third construct/principle, i.e. acting with integrity, consists of two components, as presented in Table 6. The firstcomponent is adhering to professional accounting standards and has two items. The second component is being

honest toward board of directors has two items.

Table 6

Exploratory Factor Analysis for Acting with Integrity

ComponentItem

no

Items

Factor loading

1 2


Adhering to professional

accounting standards

intg4 Adhere to technical standards issued by accounting

organizations.0.90

intg5 Adhere to ethical standards issued by accounting

organizations.0.87

Being honest toward

board of directors

intg7Inform board of directors, in writing, any violation of

company rules and regulations from the management. 0.88

intg8 Inform the board of directors all financial

transactions that affect the company negatively.0.87


372.908; df= 6; Sig. = 0.000


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Table 7 shows the results of the EFA for the fourth construct/principle, i.e. maintaining objectivity and independence.

The construct shows three components. The first component named maintaining independence consists of seven items.

The second component which represents refusing any unrelated benefits consists of two items. The third component

named exhibiting objectivity has two items.

Table 7

Exploratory Factor Analysis for Maintaining Objectivity and Independence

ComponentItemno

Items

Factor loading

1 2 3


Maintaining

independence

indp1

3

Avoid audit a company in which his/her family is the

member of board of director.0.85

indp1

2

Avoid audit a company in which his/her family is the

owner or one of the shareholders.0.84

indp1

6

Not to audit a company in which one of the members of

the board of director is a partner of an auditor in other

company.

0.82

indp1

5

Not to audit a company in which the manager is a partner

of an auditor in other company.0.80

indp1

1

Not to audit a company in which he/she is a member of

board of director.0.78

indp1

0

Not to audit a company in which he/she is one of the

shareholders of the same company.0.75

indp14

Not to audit a company in which he/she providesaccounting services such as preparing balance sheet and

income statement.

0.69

Refusing any

unrelated benefits

indp2 Not to accept any financial benefit from clients but the

auditing fees.0.89

indp1 Not to accept a gift from clients within the auditing

services period.0.87

Exhibiting

objectivity

indp6 Not to accept work when he/she does not have enough

knowledge about how to perform the work.0.77

indp7 Not to change his/her judgment due to pressure from any

quarters.0.76


2130.573; df= 55; Sig. = 0.000

The fifth construct/principle, i.e. exercising due care, results in one component, as shown in Table 8, and has five

items.


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Table 8

Exploratory Factor Analysis for Exercising Due Care

Component

Item

no

Items

Factor loading

1


Exercising due care

care11 Ensure that services are effectively and sufficiently

supervised.0.81

care10 Make sure that his/her employees plan and keep track

of their work.0.79

care5 Deliver services on time. 0.77

care6 Perform duty beyond clients expectation. 0.73

care2Use good skills in performing accounting and auditing

work. 0.71


631.795; df= 10; Sig. = 0.000

Table 9 presents the sixth construct/principle, i.e. following the limits of scope and nature of services provided. The

construct consists of three components. The first component is being able to do the work completely and has three

items. The second component is charging reasonable fees and has two items. The third component is following

experts guidelines and has three items.


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Table 9

Exploratory Factor Analysis for Following the Limits of Scope and Nature of Services

Component

Item

no

Items

Factor loading

1 2 3


Being able to do the work

completely

scp5Reject to audit a company if the accountant does

not have adequate experience to audit big

companies.

0.85

scp6 Refuse to audit a company if the accountant does

not have enough employees to audit big companies.0.82

scp7Reject to audit a company if the accountant does

not have sufficient knowledge about the companys

activities.

0.74

Charging reasonable feesscp8

Charge the client a reasonable auditing fee based on

the length of time he/she will take to finish his/herwork.

0.84

scp9 Charge the client a reasonable auditing fee based on

the volume of work performed.0.81

Following experts

guidelines

scp3 Assess judgment whether a duty is consistent with

the professional role of an accountant.0.76

scp4 Always observe the scope limit and nature of

services provided as expected by local regulators.0.72

scp1Work with a specific plan that includes the scope of

audit work based on the agreement between the

auditor and the company.

0.54


758.183; df= 28; Sig. = 0.000

Finally, the seventh construct/principle, i.e. complying with Islamic principles, results in only one component, and has

four items, as presented in Table 10.


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Table 10

Exploratory Factor Analysis for complying with Islamic Principles

Component

Item

no

Items

Factor loading

1


Complying with Islamic

principles

islm4 Treat his/her colleagues better than how they treat

him/her.0.89

islm5 Treat his/her clients better than how they treat him/her. 0.85

islm3 Hold justice by giving a professional opinion about

financial information to Muslim or non-Muslim clients.0.75

islm2 Demonstrate a good model on how a good accountant

should behave according to Islamic ethics.0.72


632.021; df= 6; Sig. = 0.000

As presented in Tables 4, 5, 6, 7, 8, 9 and 10, the results show that the ethical code of conduct consists of seven

constructs, i.e. acting responsibly, honoring the public trust, acting with integrity, maintaining objectivity and

independence, exercising due care, following the limits of scope and nature of services, and complying with Islamic

principles, with every construct consisting of one or more components. Thus, hypothesizes H1, i.e. the ethical code of

conduct for a Yemeni professional accountant is complex variable, and H2, i.e. the ethical code of conduct constitutesat least seven constructs, are supported.

The results of this study show that the construct acting responsibly has two variables. Consequently, the hypothesis

H2a, i.e. the ethical code of conduct for Yemeni professional accountants should significantly embody the domainacting responsibly, is supported. Consistently, the construct, i.e. honoring the public trust, and the construct, i.e.

acting with integrity, contain two variables. Therefore, the hypothesizes H2b, i.e. the ethical code of conduct forYemeni professional accountants should significantly embody the domain honoring the public trust, and H2c, i.e. the

ethical code of conduct for Yemeni professional accountants should significantly embody the domain acting with

integrity, are supported.

The constructs, i.e. maintaining objectivity and independence, exercising due care, and complying with Islamic

principles, have the same number of variables, i.e. three variables, for every construct. Accordingly, the hypotheses

H2d, i.e. the ethical code of conduct for Yemeni professional accountants should significantly embody the domain

maintaining objectivity and independence, H2e, i.e. the ethical code of conduct for Yemeni professional accountants

should significantly embody the domain exercising due care, and H2g, i.e. the ethical code of conduct for Yemeni

professional accountants should significantly embody the domain complying with Islamic principles are allsupported.

As for the construct of following the limits of scope and nature of services provided, it has four variables. As a

result, the hypothesis H2f, i.e. the ethical code of conduct for Yemeni professional accountants should significantly

embody the domain following the limits of scope and nature of services provided, is supported.


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CONCLUSIONSBased on the above results, the following conclusion is drawn:

1. Under the Islamic environment, additional element i.e. Islamic compliance principle needs to be included inthe ethical code of conduct for accountants. This is because country like Yemen is bound by the Shariah

Law. The Islamic ethical code of conduct for Yemeni professional accountants consists of seven constructs,

i.e. acting responsibly, honoring the public trust, acting with integrity, maintaining objectivity and independence,exercising due care, following the limits of scope and nature of services, and complying with Islamic principles.

Islamic ethical code of conduct is more applicable than AICPA ethical code of conduct specifically in Muslim

countries.

2. The sources of the Islamic ethical code of conduct are the Quran and Sunnah which contain a wideframework for ethical issues. However, most Islamic studies have addressed the issue conceptually rather

than empirically. Thus, this study empirically supports the ethical concept that is stipulated in the Quran and

Sunnah. However, the results of this study cannot be generalized to other countries because it was conducted

only in Yemen and more studies need to be done to verify and confirm the results.

3. In Islam Allah (s.w.t) created this cosmic and He is the only one who knows everything; humans knowledgeand ability to understand are limited. Therefore, to understand how things work in this world, people are

encouraged to read, study, and understand the Creators catalogs, i.e. the Quran and Sunnah.

RECOMMENDATIONS FOR FUTURE RESEARCHESThis paper has several limitations that need to be documented. First, even though this study has tried to develop an

Islamic ethical code of conduct for Yemeni professional accountants, there are certain limitations relating to a

relatively small sample that focused only on Yemen. Therefore, the results of this study may not necessarily reflect

other Muslim countries and this study only targeted professional accountants in Yemen.

To have a bigger and clearer picture about the ethical code of conduct, further research may select two groups of users

of accounting information and professional accountants. By comparing opinions between the users of accountinginformation and professional accountants may produce another picture about the ethical issues in Yemen.

As this study was conducted only in Yemen, future studies can be conducted in other countries, i.e. Arab and non-

Arab countries. Other methods to collect the data such as interviews and observations should be employed in other

countries.

This study focused on the contents of the ethical code of conduct for Yemeni professional accountant rather than on

the factors that may affect it. Thus, it will be interesting to study the factors that affect accountants ethical code of

conduct such as gender, age, experience, and organization type.

ACKNOWLEDGEMENTWe would like to thank the management of Universiti Utara Malaysia, for the assistance rendered. We also thank

several Professors such as Dr. Abdullah (Lecturer in COB/ UUM/ Malaysia), Dr. Mohammed (Dean of Education

College/ Hadhramout University/ Yemen), Dr. Amatassalm (Lecturer in Girls College/ Hadhramout University/

Yemen), Dr. Alshami (lecturer in UST-Sanaa/ Yemen), and Mr. Ameen (President of Yemeni Association for

Certified Public Accountants) for the input and feedback on the survey.


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Documents

269-2nd ICBER 2011 PG 1428-1448 Accountants Ethical Code