Auditor-client negotiation: An examination of the influence of psychological and environmental factors

This dissertation examines how senior audit practitioners interact with their clients to negotiate the resolution of complex issues. More specifically, this research focuses on: (1) the influence of engagement risk and experience on concessionary behavior; (2) the effect of engagement risk and conflict management style on the negotiation process; (3) and the influence of experience and audit firm culture on auditors' conflict management style. The examination of these relationships extends the research on the process and concessionary behavior that auditors' engage in during negotiation. This research effort also illuminates important environmental and psychological factors that directly affect the negotiation process and negotiated outcomes.; The work of Gibbins et al. (2001) identified the significance of negotiation in the audit environment and provided a framework for examining auditor-client negotiation. However, their study does not specifically control for factors generally encountered in an accounting environment (e.g., engagement risk, experience, firm culture, etc.). A logical extension of their study, as proposed in my research, is to examine environmental and psychological factors that influence the negotiation process and negotiated outcomes.; Gibbins et al. (2001) also note that certain limitations of their study include asking participants to select their own negotiation examples, which may have biased the responses toward negotiations where outcomes were satisfactory to the respondents. Further, they note that their analysis does not address context-sensitive factors such as bargaining strategy. I address these limitations by using an experimental approach to examine a simulated negotiation between auditor and client to identify a financial reporting alternative that satisfies both parties.; Results in my work demonstrate that certain environmental factors (e.g., risk) and psychological factors (e.g., experience) significantly influence auditors' negotiation process and outcomes. Further, auditors' conflict management style is significantly influenced by audit firm culture. I interpret these results to indicate that despite the expectation of conservatism required by GAAP, under certain circumstances auditors may acquiesce to client preferences and allow more aggressive reporting.