The results of this study are important for audit firms to consider when determining if and how the firm should utilize negotiation trainings and interventions.  Since the results indicated that larger write-downs were obtained in the role-playing strategy, the authors suggest that this may be the best of the three methods for auditors to utilize when preparing for a significant negotiation.  It also appears that this results in a “win-win” for both the client and auditor.  The auditor was able to obtain an adjustment to the financial statements that reflects the greatest accounting conservatism.  Additionally, the evidence suggests that the role play intervention also resulted in increased levels of satisfaction with the negotiation and a willingness to work together in the future.  Therefore, this strategy results in both increased levels of accounting quality and higher levels of some metrics of client satisfaction.

Trotman, K. T., Wright, A. M. and S. Wright. 2005. Auditor Negotiations: An Examination of the Efficacy of Intervention Methods. The Accounting Review 80 (1): 349-367

Even though a company’s financial statements are prepared by the client, successful auditor and client negotiations are an integral part of the process.  For example, the resolution of proposed audit adjustments and disclosures are often a result of negations between the client and auditor.  Therefore, the authors consider the effectiveness of three different negotiation preparation strategies – called interventions – on the outcome of auditor/client negotiations. The three strategies are the following: 

• Role-playing intervention:  the auditor takes the client’s place in a mock negotiation with another team member before conducting the actual negotiation with the client. 
• Passive intervention:  the auditor explicitly considers the client’s interests and options prior to the negotiation, but there is no mock interview before the actual negotiation.
• Practice intervention: the auditor conducts a practice negotiation in which he/she takes the role of the auditor and another person assumes the role of the client. 

The authors consider whether the different types of negotiation interventions will results in different negotiation outcomes, and they specifically hypothesize that the role-playing intervention will result in the most favorable outcome for the auditor.  THey suggest the use of the role-playing intervention will require the auditor to develop an understanding of the client’s interests, strategies and opinions.  By considering the client’s point of view, the auditor should be best prepared to conduct a successful negotiation with the client, and the auditor should be able to achieve a favorable outcome while being respectful to the client. 

The research evidence is collected using a case study conducted prior to December 2002.  The authors use a group of audit managers and partners from a Big 5 accounting firm.  During the experiment the subjects are asked to complete a negotiation which involves a potential lower of cost or market adjustment to raw materials inventory.   To begin, the subjects read the case materials, and then they complete one of the three interventions discussed above.  In role play or practice interventions, an actor assumes the role opposite of the subject. Next, the subject conducts the negotiation with an actor (different from the actor utilized in the intervention) who assumed the role of the client’s CFO.  At the end of the negotiation, the subject records the agreed upon adjustment and answers question about the negotiation process, satisfaction with the outcome, and perceptions about the ongoing client relationship.

• The authors find that the use of role-playing prior to negotiations resulted in the greatest inventory write-downs (i.e. the best outcome), when compared to both the practice and passive interventions.  The passive intervention (i.e., thinking about the client’s interests and options) was the second most effective, while practice negotiations provided the least benefit.
• Those subjects in the role-playing interventions also experienced greater levels of satisfaction with the negotiation outcome, increased desirability of future dealing with the client, and a belief that the client had a better understanding of the options important to the auditor.
• The authors find that those subjects in the practice intervention were able to negotiate a larger inventory write-down during the negotiation with the CFO when compared to the initial practice round.  Therefore, the practice intervention is able to provide incremental benefits to the negotiation process.