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    Effect of Auditor Negotiation Experience and Client...
    research summary posted October 13, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations 
    Effect of Auditor Negotiation Experience and Client Negotiating Style on Auditors' Judgments in an Auditor-Client Negotiation Context.
    Practical Implications:

    The results show that the benefit of greater negotiation experience is contingent on client negotiation stylethere is a benefit to assigning auditors with greater negotiation experience to negotiate with a contentious negotiation style client, but not for a client with a collaborative negotiation style.  Thus, there are potential effectiveness and efficiency gains from matching auditor negotiation experience (an auditor attribute) with client negotiation style (a client attribute).  This study is also helpful to audit researchers when they design negotiation experiments, specifically with respect to whether the negotiation experience level of participants matters in the contexts they examine. This study also contributes to the literature on the effect on auditor judgments of negotiations with clients that vary in their negotiation style.


    Fu, H., H. T. Tan, and J. Zhang. 2011. Effect of Auditor Negotiation Experience and Client Negotiating Style on Auditors' Judgments in an Auditor-Client Negotiation Context. Auditing: A Journal of Practice & Theory 30 (3): 225-237.

    auditors’ negotiation experience, client negotiation style, negotiation outcome
    Purpose of the Study:

    The use of subjective judgment is pervasive in the preparation of financial statements, and disputes often arise between clients and auditors over accounting issues where GAAP is unclear. These disputes entail negotiations between clients and auditors, and financial statements have been characterized as a product of auditor-client negotiations. The outcomes of these negotiations have significant implications on audit quality and financial statement quality, and it is important to understand determinants that influence negotiation judgments made during auditor-client negotiations.

    Auditors and client managers bring to bear on auditor-client negotiations their own particular characteristics that influence judgments made during these negotiations. In this study, the authors investigate how client negotiation style (a client characteristic) and the auditor’s negotiation experience (an auditor characteristic) jointly influence auditors’ perceived negotiation outcome. Although prior studies have examined each characteristic separately, auditor-client negotiations likely entail variations in both characteristics. For instance, partners interviewed in Hatfield et al. indicate that audit clients vary in terms of whether they are collaborative or contentious negotiators. Auditors who enter into negotiations over audit adjustments with these different types of clients also vary in terms of their negotiation experience. Currently, the literature does not inform on how these factors interact.

    Design/Method/ Approach:

    The authors used a 2 X 2 between-subjects factorial design. Ninety-nine audit managers and partners from one of the Big 4 CPA firms in China completed the experiment during a regular training session. The final sample comprised 20 partners (21 percent) and 76 managers (79 percent), with mean years of audit experience of approximately 12.1 and 7.2 years, respectively. The evidence was gather prior to February 2010.


    The results show that auditors’ negotiation experience and client negotiation style interact to affect auditors’ perceived ultimate negotiation outcome. Specifically, client negotiation style moderates the effect of auditor negotiation experience. With a contentious negotiation style client, auditors with greater negotiation experience perceive a higher ultimate negotiated write-down compared to those with lower negotiation experience. In contrast, there is no experience effect for collaborative negotiation style clients. Similarly, auditor negotiation experience also moderates the effect of client negotiation style. Lower negotiation experience auditors perceive a lower write-down for contentious than collaborative negotiation style clients; there is no effect of client negotiation style for higher negotiation experience auditors. 

    Engagement Management
    Audit Fees & Fee Negotiations