The Effect of Past Client Relationship and Strength of the Audit Committee on Auditor Negotiations

33 Pages Posted: 12 May 2011 Last revised: 5 Sep 2013

See all articles by Helen L. Brown-Liburd

Helen L. Brown-Liburd

Rutgers University, Newark - Rutgers Business School - Department of Accounting and Information Systems

Arnold Wright

Northeastern University - Accounting Group

Date Written: May 10, 2011

Abstract

Auditors and clients are often required to resolve difficult, complex accounting issues in which they have different views. Despite its importance we have little knowledge of the effect of contextual factors on auditors’ negotiation behaviors. This experimental study involving 63 experienced audit managers and partners examines the impact of the strength of the audit committee (strong or weak) and past relationship with the client (contending or compromising) on auditors’ judgments in the pre-negotiation planning phase in resolving a difficult, subjective inventory writedown issue. These two important contextual factors are posited to affect auditors’ perceived bargaining power and expectations of difficulties with respect to the impending negotiation. Specifically, we hypothesize an interaction where the most contending position (negotiation strategy) is adopted when the audit committee is strong (enhanced auditor bargaining power) and the past relationship is contending (a difficult negotiation). The findings support these expectations. In additional analyses, we obtain parallel results in the negotiation phase. In all, the findings confirm the importance of strength of the audit committee and past client relationship on auditors’ negotiation planning judgments and the concurrent consideration of these two pervasive contextual factors in the audit environment.

Keywords: auditor negotiation, pre-negotiation planning, negotiation strategy, negotiation relationship, audit committee

Suggested Citation

Brown-Liburd, Helen L. and Wright, Arnold, The Effect of Past Client Relationship and Strength of the Audit Committee on Auditor Negotiations (May 10, 2011). Auditing: A Journal of Practice & Theory, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1837558 or http://dx.doi.org/10.2139/ssrn.1837558

Helen L. Brown-Liburd (Contact Author)

Rutgers University, Newark - Rutgers Business School - Department of Accounting and Information Systems ( email )

180 University Avenue
Newark, NJ 07102
United States

HOME PAGE: http://raw.rutgers.edu/helenbrownliburd

Arnold Wright

Northeastern University - Accounting Group ( email )

406 Hayden Hall
United States

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