IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v37y2020i3p1756-1787.html
   My bibliography  Save this article

The Role of Auditor Narcissism in Auditor–Client Negotiations: Evidence from China

Author

Listed:
  • Bryan K. Church
  • Narisa Tianjing Dai
  • Xi (Jason) Kuang
  • Xuejiao Liu

Abstract

This paper reports the results of three studies (archival, experimental, and qualitative) designed to examine the effects of auditor narcissism on auditor‐client negotiations in China. We contend that narcissistic characteristics fuel auditors' competitiveness and embolden them to stand firm in negotiations, potentially lengthening the negotiation process but leading to more conservative negotiation outcomes. As predicted, our archival results suggest that auditor narcissism is positively associated with audit delay and negatively associated with clients' absolute and positive discretionary accruals. Our experimental results document that narcissistic auditors are more likely to be involved in negotiations that reach an impasse or take longer to resolve and that narcissistic auditors negotiate reported asset values that reflect less aggressive reporting choices. Our qualitative results from field interviews with practicing audit partners corroborate our archival and experimental findings. Overall, the data collected using three different research methods yield consistent results in support of our theory. Our findings shed light on factors that influence audit efficiency and quality in China. We discuss the key cultural and contextual differences between China and the West as well as the implications of these differences for future research. Le rôle du narcissisme de l'auditeur dans les négociations auditeur‐client : données chinoises Les auteurs font état des résultats de trois études (une étude d'archives, une étude expérimentale et une étude qualitative) consacrées à l'analyse des effets du narcissisme de l'auditeur sur les négociations auditeur‐client en Chine. Ils postulent que les caractéristiques narcissiques des auditeurs nourrissent leur compétitivité et consolident la fermeté de leur position dans les négociations, ce qui risque de ralentir le processus de négociation mais aussi de conduire à une issue plus conservatrice de ces négociations. Conformément aux prévisions, les résultats de l'étude d'archives semblent attester l'existence d'un lien positif entre le narcissisme de l'auditeur et le retard de l'audit et d'un lien négatif entre ce narcissisme et les ajustements discrétionnaires absolus et positifs des clients. Selon les résultats de l'étude expérimentale, les auditeurs narcissiques sont davantage susceptibles de prendre part à des négociations qui se soldent par une impasse ou dont l'aboutissement exige davantage de temps, et ils négocient la présentation des actifs à des valeurs reflétant des choix moins audacieux en matière d'information financière. Enfin, les résultats de l'étude qualitative, qui proviennent d'entrevues menées sur le terrain auprès d'associés d'audit en exercice, corroborent les conclusions de l'étude d'archives et de l'étude expérimentale. Dans l'ensemble, les données recueillies au moyen de trois méthodes de recherche différentes livrent des résultats cohérents à l'appui de la théorie des auteurs. Ces conclusions font la lumière sur les facteurs influant sur l'efficience et la qualité de l'audit en Chine. Les auteurs traitent des principales différences culturelles et contextuelles entre la Chine et l'Occident, ainsi que des répercussions de ces différences sur la recherche future.

Suggested Citation

  • Bryan K. Church & Narisa Tianjing Dai & Xi (Jason) Kuang & Xuejiao Liu, 2020. "The Role of Auditor Narcissism in Auditor–Client Negotiations: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1756-1787, September.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:3:p:1756-1787
    DOI: 10.1111/1911-3846.12565
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1911-3846.12565
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1911-3846.12565?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Francis, Jennifer & LaFond, Ryan & Olsson, Per & Schipper, Katherine, 2005. "The market pricing of accruals quality," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 295-327, June.
    2. Bame-Aldred, Charles W. & Kida, Thomas, 2007. "A comparison of auditor and client initial negotiation positions and tactics," Accounting, Organizations and Society, Elsevier, vol. 32(6), pages 497-511, August.
    3. Lisic, Ling Lei & Silveri, Sabatino (Dino) & Song, Yanheng & Wang, Kun, 2015. "Accounting fraud, auditing, and the role of government sanctions in China," Journal of Business Research, Elsevier, vol. 68(6), pages 1186-1195.
    4. Yan Sun & Hun†Tong Tan & Jixun Zhang, 2015. "Effect of Concession†Timing Strategies in Auditor–Client Negotiations: It Matters Who Is Using Them," Contemporary Accounting Research, John Wiley & Sons, vol. 32(4), pages 1489-1506, December.
    5. Schultz, Jj & Johnson, Da & Morris, D & Dyrnes, S, 1993. "An Investigation Of The Reporting Of Questionable Acts In An International Setting," Journal of Accounting Research, Wiley Blackwell, vol. 31, pages 75-103.
    6. Wang, Karl J. & Tuttle, Brad M., 2009. "The impact of auditor rotation on auditor-client negotiation," Accounting, Organizations and Society, Elsevier, vol. 34(2), pages 222-243, February.
    7. Zhenzhong Ma & Alfred Jaeger, 2005. "Getting to Yes in China: Exploring Personality Effects in Chinese Negotiation Styles," Group Decision and Negotiation, Springer, vol. 14(5), pages 415-437, September.
    8. Stephen Perreault & Thomas Kida & M. David Piercey, 2017. "The Relative Effectiveness of Simultaneous versus Sequential Negotiation Strategies in Auditor†Client Negotiations," Contemporary Accounting Research, John Wiley & Sons, vol. 34(2), pages 1048-1070, June.
    9. Kenneth B. Schwartz & Billy S. Soo, 1996. "The Association Between Auditor Changes and Reporting Lags," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 353-370, March.
    10. Dennis Campbell, 2012. "Employee Selection as a Control System," Journal of Accounting Research, Wiley Blackwell, vol. 50(4), pages 931-966, September.
    11. Ashton, Rh & Willingham, Jj & Elliott, Rk, 1987. "An Empirical-Analysis Of Audit Delay," Journal of Accounting Research, Wiley Blackwell, vol. 25(2), pages 275-292.
    12. DeFond, Mark L. & Subramanyam, K. R., 1998. "Auditor changes and discretionary accruals," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 35-67, February.
    13. Ray Ball & Lakshmanan Shivakumar, 2006. "The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition," Journal of Accounting Research, Wiley Blackwell, vol. 44(2), pages 207-242, May.
    14. G. Bradley Bennett & Richard C. Hatfield & Chad Stefaniak, 2015. "The Effect of Deadline Pressure on Pre†Negotiation Positions: A Comparison of Auditors and Client Management," Contemporary Accounting Research, John Wiley & Sons, vol. 32(4), pages 1507-1528, December.
    15. Charles Ham & Nicholas Seybert & Sean Wang, 2018. "Narcissism is a bad sign: CEO signature size, investment, and performance," Review of Accounting Studies, Springer, vol. 23(1), pages 234-264, March.
    16. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    17. Saiewitz, Aaron & Kida, Thomas, 2018. "The effects of an auditor's communication mode and professional tone on client responses to audit inquiries," Accounting, Organizations and Society, Elsevier, vol. 65(C), pages 33-43.
    18. Robert H. Ashton & Paul R. Graul & James D. Newton, 1989. "Audit delay and the timeliness of corporate reporting," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 657-673, March.
    19. Luc Quadackers & Tom Groot & Arnold Wright, 2014. "Auditors’ Professional Skepticism: Neutrality versus Presumptive Doubt," Contemporary Accounting Research, John Wiley & Sons, vol. 31(3), pages 639-657, September.
    20. Ray Friedman & Shu-Cheng Chi & Leigh Anne Liu, 2006. "An expectancy model of Chinese–American differences in conflict-avoiding," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(1), pages 76-91, January.
    21. Zhifeng Yang, 2013. "Do Political Connections Add Value to Audit Firms? Evidence from IPO Audits in China," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 891-921, September.
    22. Michael Gibbins & Steven Salterio & Alan Webb, 2001. "Evidence About Auditor–Client Management Negotiation Concerning Client’s Financial Reporting," Journal of Accounting Research, Wiley Blackwell, vol. 39(3), pages 535-563, December.
    23. Tsui, Judy S. L., 1996. "Auditors' ethical reasoning: Some audit conflict and cross cultural evidence," The International Journal of Accounting, Elsevier, vol. 31(1), pages 121-133.
    24. Hanwen Chen & Jeff Zeyun Chen & Gerald J. Lobo & Yanyan Wang, 2011. "Effects of Audit Quality on Earnings Management and Cost of Equity Capital: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 28(3), pages 892-925, September.
    25. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    26. Habib, Ahsan & Jiang, Haiyan & Bhuiyan, Md. Borhan Uddin & Islam, Ainul, 2014. "Litigation risk, financial reporting and auditing: A survey of the literature," Research in Accounting Regulation, Elsevier, vol. 26(2), pages 145-163.
    27. Feng Chen & Songlan Peng & Shuang Xue & Zhifeng Yang & Feiteng Ye, 2016. "Do Audit Clients Successfully Engage in Opinion Shopping? Partner‐Level Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 54(1), pages 79-112, March.
    28. Michael Gibbins & Susan A. McCracken & Steve E. Salterio, 2007. "The Chief Financial Officer's Perspective on Auditor†Client Negotiations," Contemporary Accounting Research, John Wiley & Sons, vol. 24(2), pages 387-422, June.
    29. Michael Firth & Phyllis L. L. Mo & Raymond M. K. Wong, 2012. "Auditors’ Organizational Form, Legal Liability, and Reporting Conservatism: Evidence from China," Contemporary Accounting Research, John Wiley & Sons, vol. 29(1), pages 57-93, March.
    30. Lambert, Tamara A. & Jones, Keith L. & Brazel, Joseph F. & Showalter, D. Scott, 2017. "Audit time pressure and earnings quality: An examination of accelerated filings," Accounting, Organizations and Society, Elsevier, vol. 58(C), pages 50-66.
    31. Robert W. McGee, 2008. "Corporate Governance in Transition Economies," Springer Books, in: Robert W. McGee (ed.), Corporate Governance in Transition Economies, chapter 1, pages 3-20, Springer.
    32. Steven E. Salterio, 2012. "Fifteen years in the trenches: Auditor–client negotiations exposed and explored," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52, pages 233-286, October.
    33. K. Hung Chan & Vivian Wei Luo & Phyllis L.L. Mo, 2016. "Determinants and implications of long audit reporting lags: evidence from China," Accounting and Business Research, Taylor & Francis Journals, vol. 46(2), pages 145-166, February.
    34. Church, Bryan K. & Peytcheva, Marietta & Yu, Wei & Singtokul, Ong-Ard, 2015. "Perspective taking in auditor–manager interactions: An experimental investigation of auditor behavior," Accounting, Organizations and Society, Elsevier, vol. 45(C), pages 40-51.
    35. Emily E. Griffith & Jacqueline S. Hammersley & Kathryn Kadous, 2015. "Audits of Complex Estimates as Verification of Management Numbers: How Institutional Pressures Shape Practice," Contemporary Accounting Research, John Wiley & Sons, vol. 32(3), pages 833-863, September.
    36. McNair, C. J., 1991. "Proper compromises: The management control dilemma in public accounting and its impact on auditor behavior," Accounting, Organizations and Society, Elsevier, vol. 16(7), pages 635-653.
    37. Alex Chu & Xingqiang Du & Guohua Jiang, 2011. "Buy, Lie, or Die: An Investigation of Chinese ST Firms’ Voluntary Interim Audit Motive and Auditor Independence," Journal of Business Ethics, Springer, vol. 102(1), pages 135-153, August.
    38. Helen Brown-Liburd & Jeffrey Cohen & Greg Trompeter, 2013. "Effects of Earnings Forecasts and Heightened Professional Skepticism on the Outcomes of Client–Auditor Negotiation," Journal of Business Ethics, Springer, vol. 116(2), pages 311-325, August.
    39. Charles Ham & Mark Lang & Nicholas Seybert & Sean Wang, 2017. "CFO Narcissism and Financial Reporting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 55(5), pages 1089-1135, December.
    40. Jihong Liu & Yaping Wang & Liansheng Wu, 2011. "The Effect of Guanxi on Audit Quality in China," Journal of Business Ethics, Springer, vol. 103(4), pages 621-638, November.
    41. Hun†Tong Tan & Ken T. Trotman, 2010. "Effects of the Timing of Auditors’ Income†Reducing Adjustment Concessions on Financial Officers’ Negotiation Judgments," Contemporary Accounting Research, John Wiley & Sons, vol. 27(4), pages 1207-1239, December.
    42. Jiang, Haiyan & Habib, Ahsan & Zhou, Donghua, 2015. "Accounting restatements and audit quality in China," Advances in accounting, Elsevier, vol. 31(1), pages 125-135.
    43. McCracken, Susan & Salterio, Steven E. & Gibbins, Michael, 2008. "Auditor-client management relationships and roles in negotiating financial reporting," Accounting, Organizations and Society, Elsevier, vol. 33(4-5), pages 362-383.
    44. Jeffrey Cohen & Ganesh Krishnamoorthy & Arnold Wright, 2017. "Enterprise Risk Management and the Financial Reporting Process: The Experiences of Audit Committee Members, CFOs, and External Auditors," Contemporary Accounting Research, John Wiley & Sons, vol. 34(2), pages 1178-1209, June.
    45. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    46. John Child & David K Tse, 2001. "China's Transition and its Implications for International Business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(1), pages 5-21, March.
    47. Gul, Ferdinand A. & Fung, Simon Yu Kit & Jaggi, Bikki, 2009. "Earnings quality: Some evidence on the role of auditor tenure and auditors' industry expertise," Journal of Accounting and Economics, Elsevier, vol. 47(3), pages 265-287, June.
    48. Ray Friedman & Shu-Cheng Chi & Leigh Anne Liu, 2006. "An expectancy model of Chinese-American differences in conflict-avoiding," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(4), pages 572-573, July.
    49. Kimberly D. Westermann & Jeffrey Cohen & Greg Trompeter, 2019. "PCAOB Inspections: Public Accounting Firms on “Trial”," Contemporary Accounting Research, John Wiley & Sons, vol. 36(2), pages 694-731, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Papirakis, Rachel, 2022. "Auditors’ self-actualization and ability to resist client pressure: Evidence from Canada," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    2. Toni Šušak, 2020. "The effect of regulatory changes on relationship between earnings management and financial reporting timeliness: The case of COVID-19 pandemic," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 453-473.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yan Luo & Steven E. Salterio, 2021. "Toward an Archival Measure of the Likelihood of Auditor‐Client Management Negotiation: An Exploration of the Audit Lag Measures Conjecture†," Accounting Perspectives, John Wiley & Sons, vol. 20(1), pages 109-143, March.
    2. Dodgson, Mary Kate & Agoglia, Christopher P. & Bennett, G. Bradley, 2021. "The influence of relationship partners on client managers’ negotiation positions," Accounting, Organizations and Society, Elsevier, vol. 92(C).
    3. Kevin Koh & Li Li & Xuejiao Liu & Chunfei Wang, 2023. "The Effect of Audit Partner Diversity on Audit Quality: Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 59(1), pages 340-380, March.
    4. Jian Cao & Feng Chen & Julia L. Higgs, 2016. "Late for a very important date: financial reporting and audit implications of late 10-K filings," Review of Accounting Studies, Springer, vol. 21(2), pages 633-671, June.
    5. Laurence Daoust & Bertrand Malsch, 2020. "When the Client Is A Former Auditor: Auditees' Expert Knowledge and Social Capital as Threats to Staff Auditors' Operational Independence†," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1333-1369, September.
    6. Obermire, Kara M. & Cohen, Jeffrey R. & Zehms, Karla M., 2021. "Audit committee members’ professional identities: Evidence from the field," Accounting, Organizations and Society, Elsevier, vol. 93(C).
    7. Bryan, David B. & Mason, Terry W., 2020. "Earnings volatility and audit report lag," Advances in accounting, Elsevier, vol. 51(C).
    8. Lambert, Tamara A. & Jones, Keith L. & Brazel, Joseph F. & Showalter, D. Scott, 2017. "Audit time pressure and earnings quality: An examination of accelerated filings," Accounting, Organizations and Society, Elsevier, vol. 58(C), pages 50-66.
    9. Xingqiang Du & Xu Li & Xuejiao Liu & Shaojuan Lai, 2018. "Underwriter–Auditor Relationship and Pre-IPO Earnings Management: Evidence from China," Journal of Business Ethics, Springer, vol. 152(2), pages 365-392, October.
    10. Hamrick, Jennifer & Schafer, Jennifer & DeZoort, Todd, 2023. "The effect of client gender and negotiation style on auditors' proposed audit adjustments," Advances in accounting, Elsevier, vol. 62(C).
    11. Rui Zhang & Raymond M. K. Wong & Gaoliang Tian & Mohan M. Fonseka, 2021. "Positive spillover effect and audit quality: a study of cancelling China’s dual audit system," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 205-239, March.
    12. Myojung Cho & Gopal V. Krishnan, 2023. "Principles-based accounting standards and audit outcomes: empirical evidence," Review of Accounting Studies, Springer, vol. 28(1), pages 164-200, March.
    13. Ku He & Xiaofei Pan & Gary Tian, 2017. "Legal Liability, Government Intervention, and Auditor Behavior: Evidence from Structural Reform of Audit Firms in China," European Accounting Review, Taylor & Francis Journals, vol. 26(1), pages 61-95, January.
    14. Singh, Harjinder & Sultana, Nigar & Islam, Ariful & Singh, Abhijeet, 2022. "Busy auditors, financial reporting timeliness and quality," The British Accounting Review, Elsevier, vol. 54(3).
    15. Dong, Bei & Nash, Jonathan & Xu, Le, 2022. "Indirect effects of regulatory change: Evidence from the acceleration of the 10-K filing deadline," Advances in accounting, Elsevier, vol. 56(C).
    16. Theodore E. Christensen & Adrienna Huffman & Melissa F. Lewis‐Western & Rachel Scott, 2022. "Accruals earnings management proxies: Prudent business decisions or earnings manipulation?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(3-4), pages 536-587, March.
    17. Blaufus, Kay & Lorenz, Daniela & Milde, Michael & Peuthert, Benjamin & Schwäbe, Alexander N., 2022. "Negotiating with the tax auditor: Determinants of tax auditors' negotiation strategy choice and the effect on firms’ tax adjustments," Accounting, Organizations and Society, Elsevier, vol. 97(C).
    18. Xingqiang Du, 2019. "Does CEO-Auditor Dialect Sharing Impair Pre-IPO Audit Quality? Evidence from China," Journal of Business Ethics, Springer, vol. 156(3), pages 699-735, May.
    19. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    20. Ya-Fang Wang, 2020. "New Insights on Audit Quality," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 13(1), pages 21-28, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:coacre:v:37:y:2020:i:3:p:1756-1787. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3846 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.