The Effects of Client Status and the Auditor’s Presentation of Multiple Estimation Alternatives on Client Financial Reporting Aggressiveness

29 Pages Posted: 10 Sep 2018 Last revised: 18 Mar 2020

See all articles by Sanaz Aghazadeh

Sanaz Aghazadeh

Louisiana State University

Andrew Collins

University of South Carolina

Chad M. Stefaniak

University of South Carolina

Date Written: March 12, 2020

Abstract

Accounting estimates are highly subjective and multiple estimation alternatives often exist for a single account. When addressing audit-related adjustments with clients, auditors must decide whether to discuss all possible estimation alternatives or approach the client with only a single, auditor-preferred estimation alternative. In an experiment with experienced CFOs and controllers, we find clients with relatively higher status (operationalized as those with a CPA license) take more aggressive financial reporting positions when the auditor approaches the client with multiple adjustment options based on various estimation alternatives. Our study provides the first evidence that client status is a significant factor in auditor-client negotiations. We also demonstrate how auditors’ approach to client negotiations involving multiple allowable estimation alternatives can influence audit quality.

Keywords: auditor-client negotiations; client status; choice theory; estimation alternatives; reporting aggressiveness; accounting estimates

Suggested Citation

Aghazadeh, Sanaz and Collins, Andrew and Stefaniak, Chad M., The Effects of Client Status and the Auditor’s Presentation of Multiple Estimation Alternatives on Client Financial Reporting Aggressiveness (March 12, 2020). Available at SSRN: https://ssrn.com/abstract=3184358 or http://dx.doi.org/10.2139/ssrn.3184358

Sanaz Aghazadeh (Contact Author)

Louisiana State University ( email )

Business Education Complex
Baton Rouge, LA LA 70803
United States
2255786699 (Phone)

Andrew Collins

University of South Carolina ( email )

1014 Greene St.
Columbia, SC 29208
United States

Chad M. Stefaniak

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States

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