Effects of Auditors' Concession Timing on Financial Officers' Negotiation Judgments

Abstract

In this paper, we develop and test a conceptual model that posits how the timing of concessions made by an auditor to auditee management influences negotiation judgments. Our model hypothesizes that auditors' concession timing strategies influence financial officers' offers (given in the round just before the auditor makes a final decision), which affects their satisfaction with the negotiation outcome, and which, in turn, affects their intention to continue their relationship with the auditor. We conduct an experiment where financial officers negotiate with a hypothetical auditor via email over four rounds of negotiation. We manipulate, between-subjects, four negotiation strategies that vary the timing of the auditor concessions given, holding constant the total amount of concessions given. These concessions vary in terms of whether they are given before the start of the negotiation, after one round of negotiation, gradually during the negotiation, or at the end of the negotiation. Our results support the mediation model, and also indicate benefits from the use of gradual or delayed concessions as opposed to early concessions. We also provide evidence on self-reported strategies used by financial officers during the negotiations.

Keywords: auditor-auditee negotiations, financial officers, negotiation strategy, concessions

JEL Classification: M49, M41, G34, C90