The impact of the precision of accounting regulation
The dissertation’s first hypothesis suggests that there exists a positive relationship between the precision of accounting regulation and the auditor’s combined use of the contending and the conceding negotiation strategy. The overall negotiation strategy is more contending the more precisely regulated the accounting issue is. We see from Table 18 that the relationship is positive (t=5.468; p<0.001) and statistically significant.
The finding is in line with prior research on the effects of audit regulation on accounting outcomes in auditor-client negotiations: with more precise regulation there is less to discuss and the accounting solution has a tendency to be in accordance with what the auditor suggests.
Even though accounting regulation is included in many auditor-client conflict studies, none of the auditor-client negotiation studies have included this presumably very important variable.
My study contributes to accounting theory by directly measuring that the precision of accounting regulation is related to how the auditor behaves: the less subjective accounting regulation, the more contending is the auditor’s overall negotiation strategy.
Because accounting regulation is measured as the respondent’s subjective understanding of the accounting regulation, the respondent’s type of partnership (the participating audit firm has a system with two levels of partnership) was included in the analysis to control for a possible competence effect. No such effect was found (see section 5.8.5).
The impact of the auditor-client relationship
The dissertation’s second hypothesis suggests that there is a negative relationship between the quality of the auditor-client relationship and the auditor’s combined use of the contending and the conceding negotiation strategy. The overall negotiation strategy is more contending the less positive the relationship is, and we see fromTable 18 that the relationship is negative (t=-3.144; p<0.01) and statistically significant.
According to the respondents in the studies of Gibbins et al. (2001 and 2007), the quality of the client relationship is one of the most important contextual variables in auditor-client negotiations over accounting issues. In an experimental study, however, Gibbins et al.
(2010) do not find that the relationship quality has a significant impact on auditors’ strategy selection. Consequently my study is the first to measure that auditor behavior in negotiations is related to the quality of the auditor-client relationship.
The impact of the audit partner’s experience
The dissertation’s third hypothesis suggests that there is a relationship (no direction is specified) between the audit partner’s experience and the auditor’s combined use of the contending and the conceding negotiation strategy. We see from Table 18 that the relationship is positive (t=3.455; p<0.01) and statistically significant: the overall negotiation strategy is more contending the more partner experience possessed by the auditor.
Prior findings on the impact of experience in auditor-client negotiations over accounting issues indicate that experience has an effect on auditor’s choice of negotiation strategy, and Brown and Johnstone (2009) find that task experience is a better measure than years of experience when studying the effect of negotiation experience. Prior studies include both partners and managers. My approach to the study of auditor experience is that I study whether the behavior of newly appointed partners differs from the behavior of more experienced partners. Consequently I use a binary measure for auditor experience and find that auditors who recently have received the partnership (less than three years of partner experience) seem to care more about the client’s wishes and expectations than do auditors with more partner experience, thus indicating that a new partner needs a few years of experience to become fully accustomed to his new role.
My findings differ from the findings in Bame-Aldred and Kida (2007) and Brown and Johnstone (2009) in that I find that a general dichotomous experience measure (years since inception of partnership) is related to auditor-client negotiation behavior and that this measure correlates more with the auditor’s negotiation behavior than a task-specific measure of auditor negotiation experience when both measures are dichotomized.
The impact of the client’s accounting competence
The dissertation’s fourth hypothesis suggests that there is a negative relationship between the client’s technical accounting knowledge and the auditor’s combined use of the contending and the conceding negotiation strategy. The overall negotiation strategy is more contending when the client has less technical accounting knowledge. We see from Table 18 that the relationship is negative (t=-2.460; p<0.01) and statistically significant.
According to Gibbins et al. (2007), the client’s accounting competence is one of the most important variables in auditor-client negotiations over accounting issues, but this variable has not been included in prior experimental or archival auditor-client conflict or negotiation studies; consequently my findings contribute to the accounting theory in this area.
Importance of contextual variables
The analysis in section 5.5 shows that the precision of accounting regulation is by far the most important variable followed by “the auditor-client relationship”, “the audit partner’s experience”, and “the client’s accounting expertise” (see also Table 18).
A model predicting negotiation accounting outcomes
In addition to contributing to the understanding of which contextual variables are related to the auditor’s choice of negotiation strategies, the study intends to use the data collected in the questionnaire to test a model that can be used to predict accounting outcomes in auditor-client negotiations over accounting issues and provide knowledge on which variables are the most important.
Logistic regression analysis indicates that the precision of the accounting regulation of the issue (p<0.001), the auditor’s experience (p<0.05), the auditor’s use of negotiation strategy (p=0.062) and the client’s audit risk (p<0.05) are the most important variables if one aims at predicting the accounting outcome in auditor-client negotiations over accounting issues (see Table 25). Prior research (see Table 4) suggests that a number of different variables have an impact on the accounting outcomes of negotiation and/or audit conflicts; my contribution is to identify the most important ones.
The main analyses use a measure of the auditor’s overall negotiation strategy that includes a composite measure of the contending strategy composed of five different statements that intend to measure different aspects of an auditor’s behavior. An alternative measure is tested in one of the supplementary analyses (see section 5.8.1). This alternative measure is based on the respondents’ agreement with the statement “I was firm in pursuing my position.” Whereas this statement is an indirect measure of auditor behavior, it is likely that when it is used in isolation it more directly measures the auditor’s goal commitment. The analysis indicates that this alternative measure of the auditor’s overall negotiation strategy is a better predictor variable than the variable that is used in the main analysis. As my study intends to focus on auditor negotiation behavior, the alternative measure is used only in the supplementary analyses section. The implication of this finding for future research is discussed in section 6.4.