The Effect of End-of-Engagement Deadline Pressure on Auditor-Client Negotiations: A Comparison of Auditors and CFOs

• In Event: Audit Process

Abstract

This study compares auditors’ and CFOs’ negotiation judgments and considers the potential differential impact the end of the audit (“end-of-engagement” pressure) has on each party. We examine magnitude differences between auditors’ and CFOs’ concessionary judgments, evaluating whether deadline pressure affects auditor concessions to a greater extent than it does CFO concessions. Prior negotiation research has evaluated the impact of deadline pressures on the negotiation process and suggests that individuals change their behaviors as deadline pressure increases (i.e., less time in which to conduct a negotiation) to increase the probability of reaching an agreement. However, in an audit context, there are asymmetric consequences for failing to reach an agreement and different negotiation tactics used by the different parties, potentially leading to differing levels of concessions. When deadline pressure increases, a party intending on using contentious tactics and a non-conceding negotiation strategy may become more concessionary in his/her behavior, due to the lack of time needed to employ such a strategy during the negotiation. Consistent with expectations, our results suggest that CFOs concede more than auditors in general; however, auditors are more reactive to deadline pressure by increasing concessions when faced with high deadline pressure, while CFOs are not. Consistent with theory, when deadline pressure is high, auditors are less likely to use contentious tactics, while CFOs are unaffected by deadline pressure. These results suggest that characteristics of the unique auditor/client negotiation environment, such as deadline pressures, have potentially differential effects on both parties due to the differing negotiation strategies employed by these parties.

Authors

• G. Bradley Bennett, University of Massachusetts Amherst

• Richard Hatfield, University of Alabama

• Chad Matthew Stefaniak, Oklahoma State University