Resolving Disputed Financial Reporting Issues: Effects of Auditor Experience and Engagement Risk on Negotiation Process and Outcome

45 Pages Posted: 23 Nov 2005

See all articles by Helen L. Brown-Liburd

Helen L. Brown-Liburd

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

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems

Date Written: November 2005

Abstract

Using an experimental task that involves a dyadic negotiation between a computer-simulated client and 60 experienced audit managers and partners, this paper examines the effects of engagement risk and auditor experience resolving complex financial reporting issues on the process and outcome of client-auditor negotiation. The results show that the level of engagement risk affects the negotiation process for auditors with less negotiation experience, revealing that these auditors use a more concessionary negotiation strategy and alter their bidding position more often when engagement risk is high. In contrast, auditors with more negotiation experience use a more contending strategy and do not alter their bidding position regardless of the level of engagement risk. The results also show that auditor experience affects the negotiation outcome, with auditors having more negotiation experience negotiating more conservative final bids and being more confident that those bids are acceptable under GAAP than auditors with less experience.

Keywords: Auditor decision-making, Experience, Negotiation, Risk

JEL Classification: M41, M49, D74, D81

Suggested Citation

Brown-Liburd, Helen L. and Zehms, Karla M., Resolving Disputed Financial Reporting Issues: Effects of Auditor Experience and Engagement Risk on Negotiation Process and Outcome (November 2005). Available at SSRN: https://ssrn.com/abstract=853026 or http://dx.doi.org/10.2139/ssrn.853026

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

Karla M. Zehms

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-234-1052 (Phone)
608-265-5031 (Fax)

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