The Influence of Perspective Taking Encouraged by the Audit Committee on Auditor and Client Judgments during Accounting Disputes

Auditing: A Journal of Practice & Theory, Forthcoming

Posted: 8 May 2014 Last revised: 17 Apr 2020

See all articles by Sudip Bhattacharjee

Sudip Bhattacharjee

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems

Kimberly Moreno

Northeastern University - Accounting Group

Jonathan Pyzoha

Miami University - Department of Accountancy

Date Written: April 16, 2020

Abstract

While recent and proposed regulations emphasize the importance of audit committees (ACs) in facilitating auditor-client communication, particularly during financial reporting disagreements, little research has examined this dynamic three-party process. We examine the influence of an AC that encourages auditors (partners and managers) and clients (CFOs and controllers) to re- examine an accounting dispute from the other party’s perspective. Experiment 1 results suggest this approach leads to a higher likelihood of agreement and greater concessionary behavior between parties than an AC that does not encourage perspective taking. Perspective taking also impacts the negotiators in different ways. Auditors’ solution sets (concessions less reservation price) shift closer to the client’s desired adjustment, while the clients’ solution sets get wider suggesting greater flexibility. Further, when the AC subsequently provides the same resolution recommendation to all negotiators, the AC’s initial approach carries over and impacts auditors’ and clients’ subsequent behavior. We find further support for these findings in Experiment 2, which was designed to rule out a potential confound and to use a different perspective taking manipulation. This paper extends negotiation research and should be of interest to practitioners, regulators, and those charged with governance by providing insight on the role of ACs during dispute resolution.

Suggested Citation

Bhattacharjee, Sudip and Moreno, Kimberly and Pyzoha, Jonathan, The Influence of Perspective Taking Encouraged by the Audit Committee on Auditor and Client Judgments during Accounting Disputes (April 16, 2020). Auditing: A Journal of Practice & Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2433669

Sudip Bhattacharjee (Contact Author)

Virginia Polytechnic Institute & State University - Department of Accounting and Information Systems ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States

Kimberly Moreno

Northeastern University - Accounting Group ( email )

360 Huntington Ave.
Boston, MA 02115
United States

Jonathan Pyzoha

Miami University - Department of Accountancy ( email )

Miami University
800 E. High Street
Oxford, OH 45056
United States
513-529-3913 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,275
PlumX Metrics