Evidence About Auditor–Client Management Negotiation Concerning Client’s Financial Reporting

Abstract

We develop a model of auditor‐client accounting negotiation, using the elements of negotiation examined in the behavioral negotiation literature, elaborated to include accounting contextual features indicated in the accounting literature and suggested by interviews with senior practitioners. We use a questionnaire structured according to the model to describe the elements, contextual features and associations between the two groups in a sample of real negotiations chosen by 93 experienced audit partners. The paper demonstrates important aspects of the sampled accounting negotiations and makes suggestions for further empirical and model development research.

Auditor–Client Interactions in the ChangedUKRegulatory Environment – A Revised Grounded Theory Model

“…Respondents are APs (Beattie, et al, 2000 and in the UK; Gibbins et al, 2001 in Canada), CFOs (Beattie, et al, 2000 and in the UK; Gibbins et al, 2005 and2007 in Canada) and, most recently, ACCs (Beattie, et al, 2008b in the UK). These studies have revealed substantial consistency in the responses of these groups.…”

Can Auditors be Independent? Experimental Evidence on the Effects of Client Type

“…Accountability theory suggests that when management is the auditor's client, there is a risk that auditors will unconsciously adopt the preferences of the management (Bazerman et al, 1997), because the antecedents for the acceptability heuristic are fulfilled: management acting as the client represents an important other party for the auditor; auditors have to justify their audit judgments and decisions to management (Gibbins et al, 2001;Sanchez et al, 2007); and auditors know management's preferred accounting method from the preliminary financial statements. Bamber and Iyer (2007) study accountability in a field-based analysis, and find that auditors who identify more strongly with management are more likely to acquiesce to the client-preferred treatment norms.…”

“…The first case covered the measurement of provisions for warranties and the second case covered allowances for bad debt. These accounting issues have often been considered in previous auditing research and are relevant to auditor-client meetings, since they affect reported earnings (Gibbins et al, 2001). We designed the cases to be ambiguous, since prior research suggests that auditors' independence is most strongly affected by client retention incentives (Hackenbrack and Nelson, 1996;Salterio and Koonce, 1997) and accountability pressure (Boiney et al, 1997) when no clear guidelines exist.…”

Determinants and implications of audit reporting lags in China

“…According to the client-auditor negotiation literature, negotiations often result in less conservative reporting as auditors make compromises (Antle and Nalebuff, 1991;Gibbins et al, 2001). As a consequence, the problems in the accounts may not be eliminated after negotiation.…”

“…According to Gibbins et al (2001), management views the negotiation as a win-lose situation and intend to persuade the auditors. Auditor's acquiescence or compromise is often expected.…”