Tamara Stojanović
University of Banja Luka, Faculty of Agriculture, Bosnia & Herzegovina

DOI: https://doi.org/10.31410/EMAN.2019.171
3rd International Scientific Conference – EMAN 2019 – Economics and Management: How to Cope With Disrupted Times, Ljubljana – Slovenia, March 28, 2019, CONFERENCE PROCEEDINGS published by: Association of Economists and Managers of the Balkans, Belgrade, Serbia; Faculty of Management Koper, Slovenia; Doba Business School – Maribor, Slovenia; Integrated Business Faculty –  Skopje, Macedonia; Faculty of Management – Zajecar, Serbia, ISBN 978-86-80194-17-2, ISSN 2683-4510


The aim of this paper is to explain the essence and significance of integrity as an element of organizational culture (i.e. control/internal environment), but also the issues of auditing/assessment of integrity as ‚soft’ control. Since many academic and professional researches and case studies has shown that organizational integrity, or the lack of it, has multiple effects on the quality of overall corporate governance, including the integrity of financial reporting, internal control systems and risk management, it is not surprising that legislation and auditing standards have introduced the obligation of assessment and reporting on the control environment/organizational culture, including the ethics, integrity and tone at the top. Considering the mission of auditing profession (especially internal auditing), the first prerequisite in this context is to define ‚integrity’ because this definition represents the criterion for its effective assessment.
However, the lack of general consensus on integrity definition is just one of many challenges auditors are facing. This paper shows that regular assessments of control environment and its elements, including the integrity, do contribute to its empowerment. Likewise, strong control environment, i.e. organizational culture, by itself, provides many different advantages resulting in overall business performance. This paper suggests that integrity carries real value, just like knowledge, technology, human, physical and social capital. Therefore, there are no formal controls that could replace or compensate for the lack of organizational integrity and auditing the integrity may create real added value.


Integrity, ethics, tone at the top, control environment (organizational culture), internal auditing, added value


[1] COSO. (1994) Internal Control – Integrated Framework. Two-Volume edition. Jersey City: American Institute of Certified Public Accountants.
[2] COSO. (2013) Internal Control—Integrated Framework. New York: COSO.
[3] COSO. (2004) “Enterprise Risk Management Framework”. Exposure Draft for Public Comment. Retrieved from www.imfperu.com/facipub/download/…/santandar_coso_erm.pdf.
[4] Werner, E., Jensen, M.C. & Zaffron, S. (2009) Integrity: A Positive Model that Incorporates the Normative Phenomena of Morality, Ethics and egality. Retrieved from https://ssrn.com/abstract=920625.
[5] Taylor, G. & Gaita, R. (1981) Integrity. Aristotelian Society, upplementary Vol. 55, 143- 159.
[6] Benjamin, M. (1990) Splitting the Difference: Compromising and integrity in ethics and politics. American Political Science Association, 84(4):1348. DOI: 10.2307/1963275.
[7] Kaptein, M. & Wempe, J. (2011) Three General Theories of Ethics and the Integrative Role of Integrity Theory. Retrieved from https://dx.doi.org/10.2139/ssrn.1940393.
[8] Simons, T.L. (1999) Behavioral Integrity as a Critical Ingredient for Transformational Leadership. Journal of Organizational Change Management, V. 12, No. 2, 89-104. DOI: 10.1108/09534819910263640.
[9] Simons, T.L. (2002) Behavioral Integrity: The Perceived Alignment Between Manager’s Words and Deeds as a Research Focus. Organization Science, V. 13, No. 1, 18-35.
[10] Weaver, G.R., Trevino, L.K. & Cochran, P.L. (1999). Corporate ethics programs as control systems: influences of executive commitment and environmental factors. The Academy of Management Journal, Vol. 42, No. I, 41-57.
[11] Weaver, G.R., Trevino, L.K. & Cochran, P.L. (1999) Corporate Ethics Practices in the Mid-1990’s: An Empirical Study of the Fortune 1000. Journal of Business Ethics, Vol. 18, No. 3, 283-294.
[12] Velasquez, M. (1996) Why ethics matters: A defense of ethics in business organizations. Business Ethics Quarterly, 6, 201–222. DOI: 10.2307/3857623.
[13] Weaver, G. R. (2004) Ethics and employees: Making the connection. Academy of Management Executive, 18, 121–125.
[14] Jennings, M. & Trautman, L.J. (2016) Ethical culture and legal liability: the GM switch crisis and lessons in governance. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2691536.
[15] National Commission on Fraudulent Financial Reporting. (1987) Report of the National Commission on Fraudulent Financial Reporting. Retrieved from https://www.coso.org/Documents/NCFFR.pdf.
[16] D’Aquila, J. M. & Bean, D. F. (2011) Does A Tone At The Top That Fosters Ethical Decisions Impact Financial Reporting Decisions: An Experimental Analysis. International Business & Economics Research Journal, Volume 2, Number 8, 41-54.
[17] Association of Certified Fraud Examiners. (2014) Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study. ACFE. Retrieved from https://www.acfe.com/rttn/docs/2014-report-to-nations.pdf.
[18] Oke, O. (2017) Fraud Risk Management: The Role of Control Environment. Retrieved from https://www.linkedin.com/pulse/fraudriskmanagementrolecontrolenvironmentolusola.
[19] Jensen, M. C. (2003) Paying People to Lie: The Truth About the Budgeting Process. European Financial Management, Vol. 9, No. 3. 379–406. DOI: 10.2139/ssrn.267651.
[20] Bitner, M., Booms, B. H. & Steinfield Tetreault, M. (1990) The Service Encounter: Diagnosing Favorable and Unfavorable Incidents. Journal of Marketing, V. 54: January, 71-84.
[21] Argyris, C. (1954) Review: Satisfactions in the White Collar Job. Retrieved from https://www.ilr.sagepub.com.
[22] Falk, A. & Kosfeld, M. (2006) The Hidden Costs of Control. American Economic Review, Vol. 96, No. 5, pp. 1611-1630.
[23] Yang, Z., Zhou, C. & Jiang, L. (2010) When Do Formal Control and Trust Matter? A Context- Based Analysis of the Effects in Marketing Channel Relationships in China, Industrial Marketing Management, Vol. 40, pp. 86-96.
[24] Chtioui, T. & Thiéry-Dubuisson, S. (2011) Hard and Soft Controls: Mind the Gap! International Journal of Business, Vol. 16, pp. 289-302.
[25] Penno, M. (2016) A Theory Of Assurance: Balancing Costly Formal Control With Tone At The Top. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876700.
[26] Syverson, C. (2011) What Determines Productivity? Journal of Economic Literature, 49, 326-365. doi=10.1257/jel.49.2.326.
[27] Backus, M. (2015) Why is Productivity Correlated with Competition? Columbia University Working Paper. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&-source=web&cd=1&ved=2ahUKE wiwpP798-7cAhWxZpoKHcy2AB8QFjAAegQIABAC&url=http%3A%2F%2Fweb.business.queensu.ca %2Ffaculty%2Fjdebettignies%2Fdocs%2Fbackus_2014_wp_procom.pdf&usg=AOvVaw3YYdRhGuaNzRNNv6GZLD8e.
[28] Hosmer, L.T. (1994) Why be moral? A different rationale for managers. Business Ethics Quarterly 4 (2): 191-204.
[29] Gilden, R.L. (1995). Consumer Survey Confirms Corporate Social Responsibility Affects Buying Decisions. Public Relations Quarterly, 39, 20-21.
[30] Overall, J. (2016) Unethical behavior in organizations: empirical findings that challenge CSR and egoism theory. Business Ethics: A European Review, Volume 25, No 2, 113-127. DOI: 10.1111/beer.12110.
[31] Verschoor, C. C. (1998) A study of the link between a corporation’s financial performance and its commitment to ethics. Journal of Business Ethics 17 (13): 1509-1516.
[32] Aguinis, H. & Glavas, A. (2012) What we know and don’t know about corporate social responsibility: a review and research agenda. Journal of Management, 38:4, 932–968. DOI: 10.1177/0149206311436079.
[33] Endrikat, J., Guenther, E. & Hoppe, H. (2014) Making sense of conflicting empirical findings: a metaanalytic review of the relationship between corporate environmental and financial performance. European Management Journal, 32:5, 735–751. DOI: 10.1016/j. emj.2013.12.004.
[34] Graham, J. R., Campbell R.H., Popadak, J., Rajgopal, S. (2017) Corporate Culture: Evidence from the Field. Retrieved from https://scholar.google.com/scholar_url?url=https://www.utahwfc.org/uploads/2017_paper2. pdf&hl=sr&sa=X&scisig=AAGBfm1_M6P72w- M16TDCouHExRs8hl3-Jw&nossl=1&oi=scholarr.
[35] PWC Fraud Academy. (2010) Tone from the Top: Transforming Words into Action. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&-cad=rja&uact=8&ved=2ahUKEwiSsIrF8tbgAhUMQRQKHd9lA6oQFjAAegQIBBAC&url=https%3A%2F%2Fwww.bentley.edu% 2Fsites%2Fwww.bentley.edu.
[36] Hermanson, D., Smith, J. & Stephens, N. (2012) How Effective are Organizations’ Internal Controls? Insights into Specific Internal Control Elements, Current Issues in Auditing, Vol. 6, pp. A31-A50.
[37] Castellano, J.F. & Lightle, S.S. (2005) Using cultural audits to assess tone at the top. The CPA Journal. 75. pp. 6-11.
[38] Amernic, J., Craig, R. & Tournish, D. (2010) Measuring and Assessing Tone at the Top Using Annual Report CEO Letters. The Institute of Chartered Accountants of Scotland. Retrieved from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&-cad=rja&uact=8&ved=2ahUKEwjvqYDT9NbgAhWE8eAKHSLzCq4QFjAAegQIDBAC&url=https%3A%2F%2Fresearchpor tal.por t.ac.uk%2Fpor tal%2Ffiles%2F231889%2FCRAIG_2010_pub_Bk_Measuring_and_assessing_tone_at_the_top_using_annual_report_CEO_letters.pdf&usg=AOvVaw0imnE2htGhch4DHCdmvjXK.
[39] European Commission. (2015) Public Internal Control Systems in the European Union – Towards the Optimal Internal Control Environment. Retrieved from https://ec.europa.eu/budget/pic/lib/docs/2017/CD_ 06_OptimisingICforManagementOfEUfunds.pdf.
[40] The Institute of Internal Auditors. (2016). International Professional Practices Framework. Accessed: January 2017. Retrieved from: https://na.theiia.org/standards-guidance/Pages/Standards-and-Guidance-IPPF.aspx.
[41] The Institute of Internal Auditors (Global). (2011) IPPF – Practice Guide: Auditing the Control Environment. Retrieved from https://www.theiia.org/guidance.
[42] The Institute of Internal Auditors (Global). (2012) Practice Guide: Evaluating Ethics – Related Programs and Activities. Retrieved from https://na.theiia.org/standards-guidance/ recommended-guidance/practice-guides/Pages/Evaluating-Ethics-related-Programs-and-Activities-Practice-Guide.aspx.
[43] Hansen, J.C., Stephens, N.M. & Wood, D.A. (2008) Entity-Level Controls: The Internal Auditor’s Assessment of Management Tone at the Top. Current Issues in Auditing, Vol. 3, No. 1, pp. 1-13.
[44] Reding, K. F., Sobel, P. J., Anderson, U. L., Head, M. J., Ramamoorti, S., Salamasick, M. & Riddle, C. (2007). Internal Auditing: Assurance and Consulting Services. The IIA Research Foundation, Altamonte Springs, FL.
[45] Guiso, L., Sapienza, P. & Zingales, L. (2006) Does Culture Affect Economic Outcomes? Journal of Economic Perspectives, 20, 23-48. DOI: 10.2139/ssrn.876601.
[46] Griesery, W., Qingqiu, L. & Simonovz, A. (2017) Integrity, Creativity, and Corporate Culture. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741049.
[47] Trevino, L.K. (1990). A cultural perspective on changing and developing organizational ethics. In R. Woodman & W. Passmore (Eds.) Research in organizational change and development, vol, 4: 195-230. Greenwich, CT: JAI Press.
[48] Weaver, G. R., Trevino, L. K., & Cochran, P. L. (1999) Integrated and decoupled corporate social performance: Management commitments, external pressures, and corporate ethics practices. Academy of Management Journal, 42, 539–552. DOI: 10.2307/256975.
[49] Jensen, M. C. & Fuller, J. (2002) What’s a Director to do? Harvard NOM Research Paper No. 02-38. Negotiation, Organization and Markets Research Papers. Retrieved from https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=357722.
[50] Fountain, L. (2012) The Control Environment. Retrieved from https://www.kscpa.org/ writable /files/Self-Study/FGE/updated_the_control_environment-_article.pdf.
[51] Stojanović T., Đokić S. i Đokić A. (2013) Organizational Behavior – Creative Tool for Creating Value. International Review, No. 1-2. 74-88.
[52] Frank, R., Bryan-Low, C., Pacelle, M., Smith, R., Berman, D., Mollenkamp, C., Young, S. (2003) Scandal scorecard. The Wall Street Journal, October 3, 2003. Retrieved from https://www.wsj.com/articles/SB 106791594884502200.
[53] Hamilton, A. M. (2002) A Season of Scandal. Stanford Business, November 2002. 14–18. Retrieved from https://www.gsb.stanford.edu/sites/gsb/files/2002November.pdf.
[54] Hirshleifer, D., P., Hsu, H. & Li, D. (2013) Innovative efficiency and stock returns. Journal of Financial Economics, 107(3), 632-654. DOI: 10.2139/ssrn.1799675.
[55] Mironov, M. (2015) Should one hire a corrupt CEO in a corrupt country? Journal of Financial Economics, 117(1), 29-42.
[56] Trevino, L.K., Weaver, G.R., Gibson, D.G. & Toffler, B.L. (1999). Managing Ethics and Legal Compliance: What Works and What Hurts, California Management Review, Vol 41, No 2, 131-151.
[57] Booth, P. & Schulz, A. K. (2003) The impact of an ethical environment on mangers’ project evaluation judgments under agency problem conditions. Accounting, Organizations and Society 29 (5-6): 473-388.
[58] Hunton, J. E., Hoitash, R.& Thibodeau, J. C. (2011) The relationship between perceived tone at the top and earnings quality. Contemporary Accounting Research 28 (4): 1190- 1224.

Share this

Association of Economists and Managers of the Balkans – UdEkoM Balkan
179 Ustanicka St, 11000 Belgrade, Serbia


Udekom Balkans is a dynamic non-governmental and non-profit organization, established in 2014 with a mission to foster the growth of scientific knowledge within the Balkan region and beyond. Our primary objectives include advancing the fields of management and economics, as well as providing educational resources to our members and the wider public.

Who We Are: Our members include esteemed university professors from various scientific disciplines, postgraduate students, and experts from ministries, public administrations, private and public enterprises, multinational corporations, associations, and similar organizations.

Building Bridges Together: Over the course of nine years since our establishment, the Association of Economists and Managers of the Balkans has established impactful partnerships with more than 1,000 diverse institutions across the Balkan region and worldwide.

EMAN conference publications are licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.