Interactive Auditor-Client Negotiations: The Effects of the Accumulating Nature and Direction of Audit Differences

Abstract

ABSTRACT In this study, we consider how the accumulating nature and income direction of audit differences influence negotiated audit adjustments. We test our expectations by constructing dyads consisting of experienced auditors and financial officers, allowing them to interact via a web-based instrument. As predicted, based on expectancy violation theory and consideration of negotiation leverage, these audit difference characteristics alter the behaviors and negotiated outcomes of our participants. Specifically, dyads determine smaller adjustments when audit differences accumulate over time. Analysis of auditor-client expectations and dialog suggests the leverage of the negotiators impacts the arguments used and the persuasiveness of those arguments. Dyads also produce smaller adjustments when an accumulating audit difference increases, rather than decreases, income, due in part to clients successfully using conservatism as a persuasive argument to convince auditors to concede. Our method provides insight into how these effects occur and how the social process can alter auditors' pre-negotiation expectations.