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The Influence of "Relationship" Partners on Client Managers' Negotiation Positions.

Sat, October 7, 1:45 to 3:15pm, TBA

Abstract

Maintaining a positive auditor-client relationship is critical for audit firms. One voluntary action firms might take to maintain a positive relationship is to assign non-decision-making liaisons (often referred to as relationship partners or “RPs”) to clients. RPs can play a major role in navigating the auditor-client relationship during sensitive issues, yet little is known about their influence on issue resolution. We conduct an experiment with financial executives to examine the influence that RPs have on the resolution of subjective issues between auditors and their clients. We also consider whether a RP’s influence varies depending on the extent to which the engagement partner and client manager have tried, albeit unsuccessfully, to resolve the issue (i.e., negotiation “ripeness”). We find that, in a traditional setting in which a RP is not assigned, client managers concede less toward a position deemed appropriate by the engagement partner when the negotiation has reached a more ripe stage (i.e., a stalemate) than when the negotiation stage is less ripe. However, we find it is at a more ripe stage that RP intervention is more effective at building trust in the audit firm and moving client managers toward the audit partner’s more acceptable position. These findings suggest that RP intervention can provide an end to a stalemate, limiting the risk of seeking alternative methods of resolution that may impair the auditor-client relationship (e.g., issuing a qualified audit opinion). Our study informs audit regulators about the influence that a RP (a non-decision making party) can have on the audit process and provides insight to audit practitioners about how to effectively utilize RP resources during auditor-client disagreements. Additionally, through a test of the ripeness theory of third party intervention, this study presents a contribution to the general negotiation literature by responding to a broader call for research to examine how the impact of third party intervention approaches can vary based on the stage of implementation.

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