Experimental Evidence of Differential Auditor Pricing and Reporting Strategies

Posted: 27 Sep 1998

See all articles by Michael Calegari

Michael Calegari

Santa Clara University - Accounting

Jeffrey W. Schatzberg

University of Arizona - Department of Accounting

Galen R. Sevcik

Georgia State University

Abstract

This study tests the competitive equilibrium predictions of a multi-period model of audit pricing and independence in two sets of laboratory markets: a control set consisting of human subjects in the role of auditors contracting with robot clients, and a treatment set of which both auditors and clients are human subjects. The results in all the control-set markets and some of the treatment markets support the predictions of "lowball" pricing and that heterogeneous beliefs among auditors regarding the treatment of a client-reporting issue is a necessary condition for independence impairment. By contrast, several treatment-set markets exhibit cooperative behavior between auditors and clients to achieve jointly beneficial outcomes. This behavior deviates from the price-independence relationship predicted in the competitive equilibrium, exhibiting instead a price-independence relationship that is characterized by an absence of lowballing and frequent independence impairment, even when auditors have homogeneous beliefs.

JEL Classification: M49

Suggested Citation

Calegari, Michael and Schatzberg, Jeffrey W. and Sevcik, Galen R., Experimental Evidence of Differential Auditor Pricing and Reporting Strategies. The Accounting Review, April 1998. Available at SSRN: https://ssrn.com/abstract=131629

Michael Calegari (Contact Author)

Santa Clara University - Accounting ( email )

Santa Clara, CA 95053
United States

Jeffrey W. Schatzberg

University of Arizona - Department of Accounting ( email )

McClelland Hall 301
Tucson, AZ 85721
United States
520-621-2238 (Phone)
520-621-3742 (Fax)

Galen R. Sevcik

Georgia State University ( email )

P.O. Box 3989
Atlanta, GA 30302-3989
United States
404-413-7231 (Phone)
404-413-7203 (Fax)

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