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    The Impact of the Timing of a Prior Year’s Auditor C...
    research summary posted April 19, 2017 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.04 Interactions with Client Management 
    The Impact of the Timing of a Prior Year’s Auditor Concessions on Financial Officers’ Judgments
    Practical Implications:

    The authors examine an important aspect of audit-client history and provide evidence on how the timing of auditor concessions in one period affects financial officers’ negotiation judgments in the subsequent period. They also show the importance of incorporating this variable into auditor-client negotiation studies. 


    Cheng, M. M., H. T. Tan, K. T. Trotman, and A. Tse. 2017. The Impact of the Timing of a Prior Year’s Auditor Concessions on Financial Officers’ Judgments. Auditing: A Journal of Practice and Theory 36 (1): 43 – 62. 

    auditor-client negotiations, negotiation strategy, concession timing and negotiation history
    Purpose of the Study:

    Auditors and clients frequently engage in negotiations to resolve disagreements over financial reporting decisions. These negotiations ultimately lead to concessions being made either by the auditor, the client, or both. Existing research delves into the effect of strategies employed during negotiations in the current period, but this study differs by examining multi-period effects of negotiation strategies. Specifically, the authors consider the impact of negotiation history by investigating three concession timing strategies (concession-start, concession-end, and gradual concession) used by auditors in the previous negotiation period and their effect on financial officers’ negotiation judgments for the current year audit.  

    Design/Method/ Approach:

    The authors conduct an experiment where financial officers made negotiation judgments after receiving information about an auditor’s negotiation behavior in the prior year. 

    • The authors find that financial officers expect a larger ultimate income-decreasing write-down and expect to provide more concessions to the auditor if their auditors had used a concession-start strategy rather than a concession-end strategy in the prior year.
    • The authors find support for a mediation model in which an auditor’s prior-period concession provided at the end (rather than the start) of the negotiation positively increases managers’ expected ultimate write-down, which then positively affects their satisfaction with the negotiation outcome; in turn, negotiation outcome positively influences manager’s intention to continue a future relationship with the auditor. 
    Engagement Management
    Interactions with Client Management