Are Auditor Negotiations Impaired During Depleting Times? The Importance of Client Interactions and Individual Attributes
57 Pages Posted: 6 May 2019 Last revised: 7 May 2020
Date Written: November 14, 2019
During financial statement negotiations, managers have incentives to report biased positions, and auditors have incentives to constrain managers’ bias (while balancing costs). We develop theory that these behaviors are more (less) consistent with the natural dispositions of higher (lower) Dark Triad managers and higher (lower) trait skeptic auditors. As such, we predict that depletion of self-regulatory resources interacts with these individual attributes to influence negotiation behaviors. We conduct an abstract experiment with incentives whereby student participants negotiate in roles analogous to managers and auditors. We manipulate depletion and measure participants’ attributes. The findings support our predictions. Absent depletion, there is little effect of manager, auditor, or joint attributes. When depleted, lower Dark Triad managers report less biased initial positions, whereas higher Dark Triads report similarly high amounts of bias. When depleted, lower skeptic auditors constrain less bias. Interestingly, higher skeptics constrain even more bias when depleted. Depletion has similar effects on auditors’ initial counteroffer aggressiveness, rounds persisted, and per-round constraining aggressiveness. As predicted, depletion and joint manager-auditor attributes interact to affect outcomes; interestingly, depletion never increases outcome bias but reduces outcome bias in negotiations between lower Dark Triad managers and higher skeptic auditors. Collectively, our findings emphasize the importance of considering auditor-manager interactions and attributes to fully understand whether depletion threatens negotiation outcomes (i.e., audited financial reporting quality).
Keywords: auditor-client negotiations, self-regulatory resource depletion, trait skepticism, the Dark Triad, auditor effectiveness, managers' biased reporting
JEL Classification: M42
Suggested Citation: Suggested Citation