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

See all articles by Lori Shefchik Bhaskar

Lori Shefchik Bhaskar

Indiana University - Kelley School of Business - Department of Accounting

Tracie M. Majors

University of Southern California

Adam Vitalis

University of Waterloo - School of Accounting and Finance

Date Written: November 14, 2019

Abstract

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

Bhaskar, Lori Shefchik and Majors, Tracie McDonald and Vitalis, Adam, Are Auditor Negotiations Impaired During Depleting Times? The Importance of Client Interactions and Individual Attributes (November 14, 2019). Available at SSRN: https://ssrn.com/abstract=3373379 or http://dx.doi.org/10.2139/ssrn.3373379

Lori Shefchik Bhaskar

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Tracie McDonald Majors (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

Adam Vitalis

University of Waterloo - School of Accounting and Finance ( email )

University of Waterloo
200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
2263382264 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
90
Abstract Views
653
rank
302,980
PlumX Metrics