What Happens When Managers Plan Negotiations Instead of Partners?

Abstract

Most serious auditor client management (ACM) negotiations occur between audit partners and senior client management. Research also shows that audit managers often attempt to resolve issues with client management for several reasons, including efficiency. Prior negotiation research in other settings as well as accounting suggests that if partners employ different strategies than managers, different negotiation outcomes will occur. Thus, given the importance of ACM negotiation to the resulting financial statements, an understanding of the intended strategy usage of partners versus managers is important. Further, generic negotiation research provides conflicting predictions about which integrative strategies would be planned to be used when experience level versus power/status differs, the exact situation of partners and managers. We find that in the use of one strategy, working together on solving the issue cooperatively, partners and managers intend to approach negotiations the same way; but that for another strategy, bringing other potential issues into consideration, their intended strategy use differs. Focusing on intended distributive (win-lose) strategies usage, we find that while power/status and experience negotiation research predictions suggest both partners and managers should use the strategies in the same manner, our results show accounting context specific use. We find that partners and managers intended distributive strategies use interacted with important elements of the accounting context which could not be predicted beyond the general likelihood of their existence if experience and power/status matters interacts with context. Implications for both practice and research are discussed.

Keywords: negotiation, strategy, experience, surrogate, auditor

JEL Classification: M49, C78