Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

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  • Jennifer M Mueller-Phillips
    Managers’ Strategic Reporting Judgments in Audit N...
    research summary posted August 31, 2016 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.04 Interactions with Client Management, 13.0 Governance, 13.05 Board/Audit Committee Oversight, 14.0 Corporate Matters, 14.11 Audit Committee Effectiveness 
    Title:
    Managers’ Strategic Reporting Judgments in Audit Negotiations
    Practical Implications:

     The results of this study are important to consider when examining the effects of the audit committee on managers’ judgments. This study identifies the changes to the reporting environment stemming from the implementation of SOX, particularly with respect to communications between auditors and the audit committee and the authority and responsibility of the audit committee. This study adds insight to prior archival research that suggests that audit committees considered to be effective are associated with greater financial reporting quality. Further, these findings suggest that managers act as if auditors and audit committees that jointly resist management pressures to engage in aggressive reporting play important roles in ensuring high financial reporting quality.

    Citation:

     Brown-Liburd, H., A. Wright and V. Zamora. 2016. Managers’ Strategic Reporting Judgments in Audit Negotiations. Auditing, A Journal of Practice and Theory 35 (2): 47-64.

  • The Auditing Section
    Negotiations Over Accounting Issues: The Congruency of Audit...
    research summary posted April 13, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    Negotiations Over Accounting Issues: The Congruency of Audit Partner and Chief Financial Officer Recalls
    Practical Implications:

    The results of this study are important for auditors and managers to consider when negotiating.  For example, the authors propose that auditors must take the initiative if they hope to achieve a “win-win” compromise because CFOs view negotiation as surrounding one issue, while audit partners view negotiations as involving multiple issues at once.  Findings from negotiation research shows that “win-win” solutions are more likely when issues are integrated than when they are isolated.  Furthermore, the authors propose that audit partners should be trained to recognize that CFOs are more likely to view the negotiation as a “win-lose” negotiation.  As a result, auditors must be trained to use tactics to achieve good outcomes under a “win-lose” scenario or to purposefully change the negotiation to a “win-win” style of negotiation when the potential for such an outcome exists.  Finally, the authors propose that auditors should be trained to understand that CFOs have different perspectives on the context of the negotiation (such as differing opinions of staff expertise), and reaching good outcomes is partially dependent on understanding the perspective of the other party.

    Citation:

    Gibbins, M., S. A. McCracken, and S.E. Salterio. 2005. Negotiations Over Accounting Issues: The Congruency of Audit Partner and Chief Financial Officer Recalls. Auditing: A Journal of Practice and Theory 24 (Supplement): 171-193.

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  • Jennifer M Mueller-Phillips
    Organizational Error Climate and Auditors’ Predispositions t...
    research summary posted October 3, 2013 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management, 11.0 Audit Quality and Quality Control 
    Title:
    Organizational Error Climate and Auditors’ Predispositions toward Handling Errors
    Practical Implications:

    The results of this study imply that an appropriately structured error climate may serve as a “soft” management control tool for an audit organization by encouraging the development of predispositions toward functional error handling behaviors, and reducing the tendency of auditors to engage in dysfunctional error handling behaviors such as ignoring or concealing errors. This increase in functional auditor error management behaviors supports both high quality work results and client cooperativeness. Managers of audit organizations should actively participate in the organization’s error climate by establishing, communicating, and practicing a high error management method. The efforts in actively dealing with the organization’s error climate could be documented and presented to regulators and oversight bodies such as the PCAOB as an integral part of the audit organization’s internal quality control.


    For more information on this study, please contact Ulfert Gronewold.
     

    Citation:

    Donle, M., and U. Gronewold. 2011. Organizational error climate and auditors’ predispositions toward handling errors. Behavioral Research in Accounting 23 (2): 69-92.

  • The Auditing Section
    Resolving Disputed Financial Reporting Issues: Effects of...
    research summary posted April 23, 2012 by The Auditing Section, tagged 05.0 Audit Team Composition, 05.05 Diversity of Skill Sets e.g., Tenure and Experience, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    Resolving Disputed Financial Reporting Issues: Effects of Auditor Negotiation Experience and Engagement Risk on Negotiation Process and Outcome
    Practical Implications:

    The critical implication from these findings is that, despite the expectation of conservatism required by GAAP, under certain circumstances some auditors may acquiesce more readily to client pressures than other auditors.  Specifically, when engagement risk is high, auditors with lower negotiation experience may tend to make more concessions in negotiations to the client than auditors with higher negotiation experience or auditors in a lower engagement risk setting.  

    Thus, though the paper does not discuss the following point specifically, the audit firms should be aware of this vulnerability of auditors with lower negotiation experience and should consider this in planning negotiations and assignments.  Potentially, audit firms may consider assigning managers and partners who are less experienced in negotiation to clients with lower engagement risk and/or lower litigation exposure for the audit firm.  Alternatively, when managers or partners with lower negotiation experience are placed on clients with high engagement risk, firms may consider assigning a manager or partner with more negotiation experience to accompany the manager or partner with less negotiation experience. 

    Citation:

    Brown, H. L., and K. M. Johnstone. Resolving Disputed Financial Reporting Issues: Effects of Auditor Negotiation Experience and Engagement Risk on Negotiation Process and Outcome. Auditing: A Journal of Practice and Theory 28(2):65-92.

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  • Jennifer M Mueller-Phillips
    Technology-Facilitated Contribution Behavior: An...
    research summary posted July 20, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.03 Interaction among Team Members, 10.04 Interactions with Client Management 
    Title:
    Technology-Facilitated Contribution Behavior: An Experimental Investigation.
    Practical Implications:

    The results speak to the importance of recruiting competent professionals to the workforce and making specific requests for assistance that include required deliverables. As individuals build confidence in their expertise and understand exactly how to assist, they will be able to provide higher-quality responses to share knowledge. This study extends the literature by operationalizing and studying mediating mechanisms to motivation to contribute and contribution quality separately. This study extends this research in an experimental setting to analyze factors expected to affect the motivation to contribute and contribution quality. By incorporating a collaboration platform included in the Microsoft Office Suite (i.e., a single technology), the effect of technology was controlled in the research design.

    Citation:

    Du, H., Lehmann, C. M., & Willson, V. L. 2014. Technology-Facilitated Contribution Behavior: An Experimental Investigation. Behavioral Research In Accounting 26 (2): 97-130.

  • The Auditing Section
    The Auditor’s Strategy Selection for Negotiation with M...
    research summary posted May 4, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    The Auditor’s Strategy Selection for Negotiation with Management: Flexibility of Initial Accounting Position and Nature of the Relationship
    Practical Implications:

    The results of the study suggest that audit partners are highly likely to use integrative negotiation strategies (i.e., where both parties experience a “win”), even in the variety of accounting contexts included in the study.  This finding implies that audit partners may routinely look for “wins” for client management, which under certain circumstances, could result in materially misstated financial statements.  The authors suggest that by gaining a more “fine-grained” knowledge of when to utilize the various negotiation tactics, along with the ability to use the tactics effectively, auditors may be even more prepared to deal with negotiations with client management that involve contentious accounting issues.  

    Citation:

    Gibbins, M., McCracken, S., and Salterio, S.E. 2010. The Auditor’s Strategy Selection for Negotiation with Management: Flexibility of Initial Accounting Position and Nature of the Relationship. Accounting, Organizations, and Society 35(6): 579 – 595.

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  • The Auditing Section
    The Effect of Auditors’ Use of a Reciprocity-Based S...
    research summary posted May 7, 2012 by The Auditing Section, tagged 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    The Effect of Auditors’ Use of a Reciprocity-Based Strategy on Auditor-Client Negotiations
    Practical Implications:

    The results of this study are important for audit firms to consider in designing their training and guidance for client negotiation. The results suggest that the concession approach leads to increased client satisfaction, retention, and better-negotiated outcomes. Thus, this approach may be useful in allowing the auditor to arrive at an outcome consistent with his/her initial, unstated position while maintaining an adequate relationship with management.

    Citation:

    Sanchez, M.H., C.P. Agoglia, and R.C. Hatfield. 2007. The Effect of Auditors’ Use of a Reciprocity-Based Strategy on Auditor-Client Negotiations. The Accounting Review 82 (1): 241-263.

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  • Jennifer M Mueller-Phillips
    The Effect of Deadline Pressure on Pre‐Negotiation P...
    research summary posted January 20, 2016 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.01 Budgeting and Audit Time Management, 10.04 Interactions with Client Management 
    Title:
    The Effect of Deadline Pressure on Pre‐Negotiation Positions: A Comparison of Auditors and Client Management.
    Practical Implications:

    This paper provides a more complete analysis on the concessionary behaviors and planned negotiation tactics of both the auditors and the client management in the same negotiation context. The findings can improve auditor practitioners’ self-awareness in the audit adjustment negotiation process and help them better consider the effect of deadline pressure on negotiations. The result that auditors react differently than the clients under the deadline pressure is particularly useful for auditor practitioners to predict the behavior of their clients and to design effective negotiation trainings.  

    Citation:

    Bennett, G. B., R. C. Hatfield, and C. Stefaniak. 2015. The Effect of Deadline Pressure on PreNegotiation Positions: A Comparison of Auditors and Client Management. Contemporary Accounting Research 32 (4): 15071528.

  • The Auditing Section
    The Effect of Magnitude of Audit Difference and Prior Client...
    research summary posted May 7, 2012 by The Auditing Section, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    The Effect of Magnitude of Audit Difference and Prior Client Concessions on Negotiations of Proposed Adjustments
    Practical Implications:

    The results of this study are important for auditors to consider because, ceteris paribus, the auditor’s proposed adjustment should not be affected by either the magnitude of the audit difference or prior concessions. The study demonstrates that even when auditors plan and execute quality audits, financial statement quality may suffer when high initial audit differences (client’s unaudited balance - auditor’s independent estimate) and/or prior client concessions exist due to unintentional bias in auditors’ proposed adjustments. Audit firms may want to consider providing formal training opportunities to address this bias and improve negotiation outcomes. Though further research is needed in this area, the authors suggest that the order in which misstatements are negotiated or resolved should be considered.

    Citation:

    Hatfield, R.C., R.W. Houston, C.M. Stefaniak, and S. Usrey. 2010. The Effect of Magnitude of Audit Difference and Prior Client Concessions on Negotiations of Proposed Adjustments. The Accounting Review 85 (5): 1647-1668.

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  • Jennifer M Mueller-Phillips
    The Effect of Past Client Relationship and Strength of the...
    research summary posted September 26, 2013 by Jennifer M Mueller-Phillips, tagged 09.0 Auditor Judgment, 09.01 Audit Scope and Materiality Judgments, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Title:
    The Effect of Past Client Relationship and Strength of the Audit Committee on Auditor Negotiations
    Practical Implications:

    The authors note a number of implications for practitioners resulting from this study.  First, auditors need to be aware of the strength of the audit committee and the prior relationship with the client to determine potential dysfunctional results, particularly if dealing with a compromising client.  This could lead to making too large of a concession.  This study also shows the importance of having a strong audit committee and how that strength leads to having an auditor that is in a stronger position to negotiate.  However, it also shows the difficulty that can occur as a result of working on a client with a weaker audit committee.  Further, this study underscores the need to continue searching for other factors that may increase negotiation position in the event of a weak audit committee environment. 
     
    For more information on this study, please contact Helen L. Brown-Liburd.
     

    Citation:

    Brown-Liburd, H. L., and A. M. Wright. 2011. The Effect of Past Client Relationship and Strength of the Audit Committee on Auditor Negotiations. Auditing: A Journal of Practice & Theory 30 (4):51-69.

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