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Auditor -client negotiation

Charles William Bame-Aldred, University of Massachusetts Amherst


The purpose of this study is to examine the approaches taken, and the negotiation decisions made, by professional auditors and clients when facing a revenue recognition conflict. Auditors and clients can encounter situations where their goals are materially different, leading to a potential conflict. How those conflicts are resolved is just beginning to be examined in the audit judgment literature. This study captures the negotiation decisions of both professional auditors and clients when they face the same conflict situation. The knowledge gained provides insight into the degree of flexibility inherent in auditor and client negotiation decisions, whether auditors and clients accurately perceive the other negotiating party's positions, the types of negotiation tactics used by auditors and clients, and the effects of opposition strategies on negotiation decisions. Auditors and clients read a scenario describing an ambiguous revenue recognition problem. Participants then responded to a series of questions designed to elicit their pre-negotiation and negotiation decisions. These included their goal and limit, perception of the other party's goal and limit, likelihood of using various negotiation tactics, and concern for themselves and for the other party. Subsequently, each participant read the opponent's initial communication for the revenue recognition problem. The opponent's communication was designed to convey two pieces of information: (1) the opponent's preferred financial reporting solution, and (2) the opponent's negotiation strategy. Each participant then completed a second questionnaire designed to capture any changes in their prior decisions. The results indicate that auditors and clients approach conflict resolution and make negotiation decisions in very different ways. Clients demonstrated a greater capacity to be flexible (wider solution sets), determined the auditor's goals and limits more accurately, were likely to use a wider variety of negotiation tactics, and adapted more to the auditor's communicated goal. These differences in flexibility, understanding, and adaptability existed in spite of the clients' lower level of concern for the auditor's outcome. While it may appear that auditors are unskilled negotiators, these data are also consistent with the view that auditors are hired to provide independent, accurate judgments on financial reporting matters, and consequently consider their accounting decisions to be less open for negotiation as compared to clients. Implications and directions for future research given these findings are discussed.

Subject Area


Recommended Citation

Bame-Aldred, Charles William, "Auditor -client negotiation" (2004). Doctoral Dissertations Available from Proquest. AAI3118284.