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Auditor-client management relationships and roles in negotiating financial reporting

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  • McCracken, Susan
  • Salterio, Steven E.
  • Gibbins, Michael

Abstract

We carry out an interview based field study of chief financial officer (CFO)-audit partner dyads to examine the assumption that the roles played by each side and the nature of the relationships are similar across negotiations. These dyads freely discussed with us their relationship, a specific issue negotiated and it's resolution process. Employing the lens of social positioning negotiation research, we find these negotiations are 'fluid', with continual redefinition not only of the substantive issues under negotiation, but also of the negotiation roles and relationships (i.e. 'shadow' negotiations). The CFO's actions and expectations in these 'shadow' negotiations appear to define the auditor's role and the relationship's parameters, but both can evolve over time. The audit partners express a desire to be in the "ideal" relationship where they assume the role of the 'expert advisor' (as opposed to a 'police officer') but they seemingly have no explicit strategy to move the relationship toward a 'proactive' (rather than 'reactive') state. Furthermore, the audit partner is always the 'relationship manager' whose job it is to see that client management remains "happy". These roles and relationships negotiated in the 'shadows' also affect how the negotiation process unfolds, including the set of alternative accounting treatments considered during negotiations. Finally, audit firms appear to manage the assignment of partners to engagements based on CFO preferences and remove those partners who are in "poor" relationships, irrespective of why the relationship is considered by the CFO to be "poor". Implications for the broader research program on auditor-client management negotiations are discussed.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:aosoci:v:33:y:2008:i:4-5:p:362-383
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    References listed on IDEAS

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    1. Radcliffe, Vaughan S., 1999. "Knowing efficiency: the enactment of efficiency in efficiency auditing," Accounting, Organizations and Society, Elsevier, vol. 24(4), pages 333-362, May.
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    3. Power, Michael K., 2003. "Auditing and the production of legitimacy," Accounting, Organizations and Society, Elsevier, vol. 28(4), pages 379-394, May.
    4. Power, Michael, 1997. "Expertise and the construction of relevance: Accountants and environmental audit," Accounting, Organizations and Society, Elsevier, vol. 22(2), pages 123-146, February.
    5. Cooper, David J. & Robson, Keith, 2006. "Accounting, professions and regulation: Locating the sites of professionalization," Accounting, Organizations and Society, Elsevier, vol. 31(4-5), pages 415-444.
    6. Gendron, Yves & Bedard, Jean, 2006. "On the constitution of audit committee effectiveness," Accounting, Organizations and Society, Elsevier, vol. 31(3), pages 211-239, April.
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    Cited by:

    1. repec:eee:ijoais:v:20:y:2016:i:c:p:1-15 is not listed on IDEAS
    2. repec:eee:aosoci:v:65:y:2018:i:c:p:33-43 is not listed on IDEAS
    3. Raymond A. Ezejiofor & Nwakoby, Nkiru Peace & Okoye, F. N. Jane, 2016. "Impact Of Forensic Accounting On Combating Fraud In Nigerian Banking Industry," International Journal of Academic Research in Management and Business, International Journal of Academic Research in Management and Business, vol. 1(2), pages 1-19, September.
    4. repec:eee:crpeac:v:24:y:2013:i:7:p:550-571 is not listed on IDEAS
    5. Perreault, Stephen & Kida, Thomas, 2011. "The relative effectiveness of persuasion tactics in auditor–client negotiations," Accounting, Organizations and Society, Elsevier, vol. 36(8), pages 534-547.
    6. Chen, Qiu & Kelly, Khim & Salterio, Steven E., 2012. "Do changes in audit actions and attitudes consistent with increased auditor scepticism deter aggressive earnings management? An experimental investigation," Accounting, Organizations and Society, Elsevier, vol. 37(2), pages 95-115.
    7. Elisabeth Bertin & Christophe Godowski, 2010. "Interactions entre les acteurs du processus global d'audit et gouvernance de l'entreprise : une étude exploratoire," Post-Print hal-00477399, HAL.
    8. Raymond A. Ezejiofor & Nkiru Peace Nwakoby & Jane F. N. Okoye,, 2016. "Impact Of Forensic Accounting On Combating Fraud In Nigerian Banking Industry," Post-Print halshs-01359758, HAL.
    9. X. Walthoff-Borm & L. Chalmet, 2013. "Behind closed doors: the potential of lean management in safety audit services," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/838, Ghent University, Faculty of Economics and Business Administration.
    10. Yim, Andrew, 2013. "Mixture and Continuous 'Discontinuity' Hypotheses: An Earnings Management Model with Auditor-Required Adjustment," MPRA Paper 44702, University Library of Munich, Germany.

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