In this paper, we present the results of an experiment that investigates the effects of two contextual features—the availability of authoritative guidance and the effectiveness of the client's audit committee—on auditors' perceived outcome of auditor-client negotiations concerning an audit adjustment that affects the client's ability to meet analysts' forecasts. Results show that auditors' perceived negotiation outcome is jointly influenced by authoritative guidance availability and audit committee effectiveness. Specifically, authoritative guidance availability has a greater effect on auditors' perceived negotiation outcome in the absence of an effective audit committee than in its presence. We also find that concessionary moves by the client increase auditors' propensity to concede to the client's preferred position.

This study delineates conditions under which performance is adversely affected by task complexity and reports-related empirical evidence. Specifically, it examines the moderating roles of both accountability and knowledge on the relation between task complexity and auditors' performance. Based on a reanalysis of the data from Tan and Kao (1999), the results indicate that accountability and knowledge jointly moderate the relation between task complexity and performance. Results show that performance declines with increasing complexity only under combinations of low knowledge and high accountability, or low accountability and high knowledge. Performance is unaffected by increasing task complexity when auditors have high knowledge and high accountability, or have low knowledge and low accountability. These findings contribute to a better understanding of the conditions under which performance may (or may not) be adversely affected by task complexity.

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We conduct an experiment to investigate whether the effects of an SAS No. 90-like quality assessment standard (QAS) on auditors’ decision to accept a client-preferred accounting method is jointly moderated by the nature of advice from an audit firm’s technical department and the strength of the client’s justification. Results indicate that, in the absence of advice, the presence of QAS does not affect auditors’ decision, regardless of client justification strength. However, in the presence of advice from the technical department, the presence of QAS significantly reduces auditors’ propensity to accept the client-preferred method, but only when the advice explicitly recommends the use of the most appropriate method and the client’s justification is strong. These findings demonstrate the complementary roles that professional standards and audit firms’ technical departments play in enhancing the quality of auditors’ decisions, and indicate that the nature of advice matters.

SUMMARY We examine the joint effects of incentive schemes and working relationships on auditors' propensity to report an audit partner's wrongdoing that impairs financial reporting quality in an experiment involving 90 audit seniors and managers. We predict and find that, relative to a control condition without an incentive scheme, a reward-based career-related incentive scheme is less likely to increase auditors' whistle-blowing propensity in the presence of a close working relationship with the wrongdoer than in its absence. In contrast, a penalty-based career-related scheme increases auditors' whistle-blowing propensity relative to the control condition regardless of the presence of a close working relationship. These results are consistent with a heightened social stigma associated with whistle-blowing on someone close for personal gains, and a preference to avoid losses rather than to acquire gains as predicted by prospect theory. The findings have useful implications for practice and suggest boundary conditions under which an incentive scheme can promote whistle-blowing. JEL Classifications: M40; M42.