Expectancy Violations and Audit Partner Tenure on Client Managers’ Negotiation Positions: The Benefits and Implications of Longer Partner Tenure

• In Event: Auditor-Client Relationships & Interactions

Abstract

Auditors communicate continuously with client management during the course of audit testwork. By requesting audit evidence, performing inquiries with management, and following up when necessary, auditors gain an understanding of audit differences and refine their testwork accordingly. As communications progress, client managers may develop expectations about their audit partner’s view or position on certain matters. We conduct two experiments to examine the effect that expectancy violations have on client managers’ pre-negotiation positions, and how differences in audit partner tenure can moderate this effect. In Experiment 1, we find that, when the audit partner’s proposed adjustment is within the range that client managers originally expect (i.e., no expectancy violation), client managers offer greater pre-negotiation concessions to a recurring audit partner than to a newly rotated audit partner. However, when the audit partner’s proposed adjustment is greater than expected, client managers essentially “punish” the recurring audit partner by offering lower concessions compared to a newly rotated partner. Given client managers’ reaction to a recurring audit partner when an expectancy violation arises, we propose a practical intervention for audit partners to use to manage expectations when there is a potential for expectancy violation. In Experiment 2, we predict and find that client managers offer greater pre-negotiation concessions when the recurring audit partner utilizes a violation-repairing communication approach. Our study offers insights on the auditor-client negotiation process when client managers form expectations during the audit and helps to inform accounting practitioners and researchers of the effects of proper expectation management.

Authors

• Mary Kate Dodgson, University of Massachusetts-Amherst

• Christopher P Agoglia, University of Massachusetts-Amherst

• G. Bradley Bennett, University of Massachusetts-Amherst