Does Auditor Self-Regulatory Depletion Harm Year-End Negotiation Outcomes? The Importance of Considering Managers’ Depletion and Individual Attributes

• In Event: The Influence of Management and Boards on Audit Judgment and Processes

Abstract

Auditor-manager negotiations are critical given managers’ incentives to report aggressively and the auditor’s role in curbing such aggressiveness thereby jointly impacting audit and financial reporting quality. Using an abstract, incentivized experiment in which student-participants assume roles analogous to managers and auditors, we examine how depletion of auditors’ and managers’ limited self-regulation resources affects their negotiations and outcomes. We manipulate auditors’ and managers’ depletion and measure their individual attributes. We predict and find that managers’ initial negotiation positions are less aggressive when they are depleted versus non-depleted, but only for lower Dark Triad managers (higher Dark Triad managers’ aggressive positions are not impacted by depletion). We also predict and find that auditors negotiate less effectively when depleted, but only for lower Machiavellian auditors (higher Machiavellian auditors do not suffer from depletion). Finally, we find that final agreed-upon values are less aggressive, on average, when managers and auditors are depleted, unless negotiations involve higher Dark Triad managers. Collectively, our findings reinforce concerns that depleted auditors negotiate less effectively, but our interactive design identifies a “silver lining” – this effect may not threaten financial reporting quality if managers are also depleted, which is likely the case during busy times when negotiations occur.

Authors

• Lori Shefchik Bhaskar, Indiana University - Bloomington

• Tracie Majors, University of Southern California

• Adam Vitalis, University of Waterloo