Are Auditor Negotiations Impaired During Depleting Times? The Importance of Client Characteristics and Auditor Skepticism

• In Event: Auditor Skepticism

Abstract

During negotiations, managers have incentives to report aggressively and auditors have incentives to constrain managers’ reporting aggressiveness. We predict that depletion (of self-regulation resources) reduces managers’ aggressiveness in initial positions, with stronger effects as managers are lower Dark Triad. Likewise, we predict that depletion impairs auditors’ constraining of aggressive reporting, with stronger effects as auditors are lower on trait skepticism. We conduct an abstract, incentivized experiment in which students negotiate in roles analogous to managers and auditors. We measure participants’ attributes and manipulate whether participants negotiate under depleting or non-depleting conditions. Results support our predictions. Further, agreed-upon amounts are less overstated under depletion, but this finding weakens as managers are higher Dark Triad or auditors are lower trait skeptics. Our findings have implications for financial reporting and audit quality because financial statement negotiations occur under highly depleting conditions in practice.

Authors

• Lori Shefchik Bhaskar, Indiana University - Bloomington

• Tracie Majors, University of Southern California

• Adam Vitalis, University of Waterloo