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    Negotiations Over Accounting Issues: The Congruency of Audit...
    research summary posted April 13, 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 
    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.


    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.

    accounting negotiation, audit partner, chief financial officer
    Purpose of the Study:

    Auditor-client disagreements over accounting treatment are frequently negotiated as part of the audit process.  The outcomes of the
    negotiations determine the content of financial statements making auditor-client negotiation a process of interest to regulators, financial statement users, auditors and their clients, and researchers alike.  However, because negotiations take place behind closed doors, very little data is available to study the negotiation process and outcomes.  For example, there is little evidence as to whether or not CFOs and audit partners view the process in the same way.  The authors base the paper on a model of the audit negotiation process that involves six negotiation elements: antecedents; issues involved; process; outcome; consequences; and context. Using this model, the authors attempt to investigate reporting of negotiation elements, importance of contextual features, and consistencies vs. inconsistencies in the negotiation process for CFOs and audit partners.

    Design/Method/ Approach:

    The research evidence is collected by questionnaire during 1997 for audit partners and during 2002 for the CFO sample (both in Canada).  Participants responded to a questionnaire asking about their recollection of an audit negotiation that they had been personally involved with in the past. Questionnaires were designed differently for CFOs and audit partners, respectively.

    • The authors find that, in general, audit partners and CFOs recalled the same elements and contextual features of the negotiation process.  Four important elements with high levels of agreement include:
    • Relatively little involvement of the audit committee
    • High desire of both parties to reach an agreement
    • Very little evidence of opinion shopping
    • Importance of commonly identified contextual features
    The authors find that very few contextual features were consistently rated as important to the negotiation process.  These features are: The role of accounting standards The level of expertise of the negotiating parties The relationship between the negotiating parties The authors find that CFOs are more likely to view negotiation as involving one issue, whereas audit partners are more likely to view negotiation as involving multiple issues. Audit partners are more sensitive to outcomes of prior negotiations with the client whereas CFOs are more sensitive to the expertise of the participants and the quality of the relationship.
    Auditor Judgment, Engagement Management
    Prior Dispositions/Biases/Auditor state of mind, Interactions with Client Management
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