A Comparison of Auditor and Client Negotiation Decisions

This study examines the negotiation decisions made by professional auditors and clients when facing a revenue recognition conflict. Specifically, we investigate the degree of flexibility inherent in auditor and client negotiation decisions, whether auditors and clients accurately perceive the other negotiating party's positions, and the types of negotiation tactics used by both parties. The results indicate that auditors and clients approach conflict resolution in very different ways. Clients were more flexible (i.e., exhibited a greater difference between their revenue recognition goals and limits), determined the auditor's goals and limits more accurately, and were more likely to use negotiation tactics such as bid high/concede later and trade-off one reporting issue for another. These data are consistent with the view that auditors are hired to provide independent, accurate judgments on financial reporting matters, and may therefore consider their accounting decisions to be less open for negotiation as compared to clients. Implications and directions for future research are discussed.