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    Auditor-Client Management Relationships and Roles in...
    research summary posted May 4, 2012 by The Auditing Section, last edited May 25, 2012, tagged 09.0 Auditor Judgment, 09.10 Prior Dispositions/Biases/Auditor state of mind, 10.0 Engagement Management, 10.04 Interactions with Client Management 
    Auditor-Client Management Relationships and Roles in Negotiating Financial Reporting
    Practical Implications:

    The results of this study identify that the “shadow” negotiation exists and provides insights into how the roles and relationships are negotiated.  This research identifies the CFO as having the commanding position in the negotiation process and identifies the “turns” available to the auditor in the process. The authors indicate that the Sarbanes-Oxley Act may provide that auditor with a new “move” by requiring the auditor to disclose the “preferred” accounting method to the audit committee.


    McCracken, S., S.E. Salterio, and M. Gibbins. 2008. Auditor-client management relationships and roles in negotiating financial reporting. Accounting, Organizations and Society 33 (4-5): 362-383

    Auditor-client negotiation
    Purpose of the Study:

    This study focuses on the audit partner-chief financial officer (CFO) pair (i.e. the two main negotiators) in an actual ongoing relationship.  The authors use social positioning research, which investigates not only the substantive issues under negotiation, but also the “shadow” negotiation, which defines the roles of the negotiators, as well as negotiating power, in the relationship.  This research theorizes that the “shadow” negotiation occurs at the same time as the negotiation of the substantive issue and that the “shadow” negotiation affects the substantive issue negotiation.  This study examines the negotiator’s available “moves” to define how the relationship works and the power of each negotiator and the opposing negotiator’s “turn” to counter resist any attempt to change the positioning of the two parties.  The main objective of this study is to examine the relationships among the audit partner-CFO pairs.

    Design/Method/ Approach:

    The authors interviewed eight CFO-auditor pairs regarding auditor-client management negotiations in November and December 2001.  Interviews were first conducted with the CFOs regarding a specific example of an accounting issue negotiated with the auditor.  These were followed by interviews of the audit partner, five used the same example as the CFO, three used a different example.  The interviews typically lasted 45-75 minutes and were conducted by asking three open-ended questions in a conversational tone followed by five specific questions if they were unanswered in the open ended questions. 

    • In the partner/CFO pair, the audit partner is the “relationship manager,” responsible for developing or maintaining a “good” relationship, while the CFO determines the type of relationship that develops.  
    • The relationship between auditor and client is either proactive or reactive.  In a proactive relationship the auditor and CFO work together throughout the year (auditor is an “expert advisor”) whereas in a reactive role the auditor is not informed until time for the review (auditor is a “police officer”).  
    • The audit firm focuses on client management versus ending the relationship.  The firm prefers to assign a partner that matches the CFO’s preferred relationship style rather than threaten the loss of the client. 
    • The CFO can perform “moves” to change the auditor role to the desired relationship type including the threat to end the relationship, asking for a second opinion from national office, and indicating that the economic reality is not reflective in the GAAP accounting.  The auditor may “turn” these “moves” by preemptively consulting the national office. 
    • The auditor’s only “move” in the relationship is the passage of time to get to know the CFO better.
    Auditor Judgment, Engagement Management
    Prior Dispositions/Biases/Auditor state of mind, Interactions with Client Management
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