The Impact of Auditor-Client Disagreements on Auditor Justification

• In Event: 4.01 Behavioral Audit Research

Abstract

Auditor-client disagreements are generally resolved through negotiation. Written justification helps auditors develop initial negotiating positions. Drawing on existing literature we explore the relationship between auditor-client disagreements and auditor justification. We hypothesize and find that auditors disagreeing (agreeing) with a client’s proposed accounting treatment provide more (less) justification. We then examine how this disagreement/justification relationship interacts with both accounting standard type and regulatory scrutiny. In particular, we find increased justification when the auditor and client disagree and accounting standard is rules-based. These findings extend current research in at least two ways. First, existing auditor-client disagreement research focuses on high-level negotiations, involving audit partners and client management. We consider more routine auditor-client disagreements resulting from errors, differing GAAP interpretations, etc. We also investigate justification from a multi-party accountability perspective. Because multi-party accountability naturally occurs in the audit environment, we provide insight into how auditors cope with the resulting variety of accountability demands.

Authors

• Christine Haynes, University of West Georgia

• Gary P Braun, California State University, Chico

• Tom D Lewis, Creighton University

• Mark H Taylor, Case Western Reserve University