IDEAS home Printed from https://ideas.repec.org/a/spr/grdene/v23y2014i6d10.1007_s10726-013-9371-5.html
   My bibliography  Save this article

The Relationship of Cognitive Effort, Information Acquisition Preferences and Risk to Simulated Auditor–Client Negotiation Outcomes

Author

Listed:
  • Gary Kleinman

    (Montclair State University)

  • Dan Palmon

    (Rutgers Business School)

  • Kyunghee Yoon

    (Rutgers Business School)

Abstract

The auditor–client relationship is a legally-mandated relationship in which one party, the auditor, is hired and paid by the auditee (client) to inform third party stakeholders as to whether the client firm’s financial statements are presented in conformity with national financial accounting standards. When these statements do not meet the criteria for acceptable financial statements, a negotiation situation may arise in which the auditor is presumed to act in the best interests of shareholders and creditors who have no independent knowledge of the auditor’s findings. The client management may then feel forced to defend its numbers. The result is a negotiation between the auditor and client (e.g., Salterio in Account Financ 52:233–286, 2012; Brown and Wright in Account Horiz 22(1):91–109, 2008). This study examines cognitive factors and risk preference factors that may impact the negotiation both in the setting of each side’s negotiation position and on the outcomes of that negotiation using simulated auditor–client negotiations. Questionnaire and simulated auditor–client negotiations were used to generate the data, with MBA and MS in Accounting students playing the role of client CEOs and auditor partners. We further explore the use of a tool, Structural Equation Modeling, to test the data, in the process highlighting its usefulness in auditor–client negotiation research. We find that the cognitive characteristic of need for cognition is significantly and positively related to achievement of the negotiator’s desired income objectives and reported willingness to argue strongly for his/her position. Actively open-minded thinking, a second cognitive variable studied, was not significantly related to success in the negotiations, nor to a reported willingness to argue strongly for his/her position. Finally, we find that perceived aggressive tactics by the other party to the negotiation had a negative impact on the counterpart negotiator’s success in the negotiation, and satisfaction with it. As expected, risk assessment-related variables were not related to outcomes of interest.

Suggested Citation

  • Gary Kleinman & Dan Palmon & Kyunghee Yoon, 2014. "The Relationship of Cognitive Effort, Information Acquisition Preferences and Risk to Simulated Auditor–Client Negotiation Outcomes," Group Decision and Negotiation, Springer, vol. 23(6), pages 1319-1342, November.
    • Handle: RePEc:spr:grdene:v:23:y:2014:i:6:d:10.1007_s10726-013-9371-5
    DOI: 10.1007/s10726-013-9371-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10726-013-9371-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10726-013-9371-5?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul M. Romer, 2000. "Thinking and Feeling," American Economic Review, American Economic Association, vol. 90(2), pages 439-443, May.
    2. Libby, Robert & Luft, Joan, 1993. "Determinants of judgment performance in accounting settings: Ability, knowledge, motivation, and environment," Accounting, Organizations and Society, Elsevier, vol. 18(5), pages 425-450, July.
    3. Parker, Robert J. & Kohlmeyer, James III, 2005. "Organizational justice and turnover in public accounting firms: a research note," Accounting, Organizations and Society, Elsevier, vol. 30(4), pages 357-369, May.
    4. Gary Kleinman & Asokan Anandarajan & Ann Medinets & Dan Palmon, 2010. "A theoretical model of cognitive factors that affect auditors' performance and perceived independence," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 1(3), pages 239-267.
    5. Lawrence P. Kalbers & William J. Cenker, 2007. "Organizational commitment and auditors in public accounting," Managerial Auditing Journal, Emerald Group Publishing, vol. 22(4), pages 354-375, April.
    6. Gary Kleinman & Dan Palmon, 2009. "Procedural Instrumentality and Audit Group Judgment: An Exploration of the Impact of Cognitive Fallibility and Ability Differences," Group Decision and Negotiation, Springer, vol. 18(2), pages 147-168, March.
    7. Gary Kleinman & Dan Palmon & Picheng Lee, 2003. "The Effects of Personal and Group Level Factors on the Outcomes of Simulated Auditor and Client Teams," Group Decision and Negotiation, Springer, vol. 12(1), pages 57-84, January.
    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. Anna Che Azmi & Yuen Hoong Voon, 2016. "The Effect of Clients’ Auditing Experience and Concession-Timing Strategies on Auditor-Client Negotiations," Group Decision and Negotiation, Springer, vol. 25(5), pages 1049-1069, September.
    2. Pyung Kyung Kang & Yoo Chan Kim & Dan Palmon, 2020. "Client’s Bargaining Power and Audit Negotiation over Earnings: Evidence from Audit Processes in a Business Groups Environment," Group Decision and Negotiation, Springer, vol. 29(6), pages 1207-1238, December.

    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. Asokan Anandarajan & Gary Kleinman & Dan Palmon, 2008. "Novice and expert judgment in the presence of going concern uncertainty: The influence of heuristic biases and other relevant factors," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(4), pages 345-366, April.
    2. Kleinman, Gary & Anandarajan, Asokan, 2011. "Inattentional blindness and its relevance to teaching forensic accounting and auditing," Journal of Accounting Education, Elsevier, vol. 29(1), pages 37-49.
    3. Nouri, Hossein & Parker, Robert J., 2013. "Career growth opportunities and employee turnover intentions in public accounting firms," The British Accounting Review, Elsevier, vol. 45(2), pages 138-148.
    4. Petrus Ridaryanto, 2020. "Organizational Commitments in Financial Service Audit With Antecedents of Organizational Justice and Job Satisfaction," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 86-95, July.
    5. Olivier Herrbach, 2001. "Audit quality, auditor behaviour and the psychological contract," European Accounting Review, Taylor & Francis Journals, vol. 10(4), pages 787-802.
    6. Deepak, 2016. "Antecedent Value of Professional Commitment and Job Involvement in Determining Job Satisfaction," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 41(2), pages 154-164, May.
    7. Clement, Michael B. & Koonce, Lisa & Lopez, Thomas J., 2007. "The roles of task-specific forecasting experience and innate ability in understanding analyst forecasting performance," Journal of Accounting and Economics, Elsevier, vol. 44(3), pages 378-398, December.
    8. Andrew J. Rosman, 2011. "Auditors' going‐concern judgments: rigid, adaptive, or both?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 10(1), pages 30-45, February.
    9. Hall, Matthew & Smith, David, 2009. "Mentoring and turnover intentions in public accounting firms: a research note," LSE Research Online Documents on Economics 28924, London School of Economics and Political Science, LSE Library.
    10. Neba Bhalla & Rakesh Kumar Sharma & Inderjit Kaur, 2023. "Effect of Goods and Service Tax System on Business Performance of Micro, Small and Medium Enterprises," SAGE Open, , vol. 13(2), pages 21582440231, June.
    11. Adriana TIRON-TUDOR & Melinda Timea FULOP & George Silviu CORDOS, 2019. "Financial Auditor Profession’s Attractiveness for Y Generation (Millennials)," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 17(156), pages 642-642.
    12. Ken H. Guo, 2012. "Understanding Why and How Some Chartered Accountants Object to the Proposed Merger of the Three Accounting Professions in Canada," Accounting Perspectives, John Wiley & Sons, vol. 11(2), pages 111-130, June.
    13. Glover, Steven M. & Prawitt, Douglas F. & Spilker, Brian C., 1997. "The Influence of Decision Aids on User Behavior: Implications for Knowledge Acquisition and Inappropriate Reliance," Organizational Behavior and Human Decision Processes, Elsevier, vol. 72(2), pages 232-255, November.
    14. Kathryn Kadous & Yuepin (Daniel) Zhou, 2019. "How Does Intrinsic Motivation Improve Auditor Judgment in Complex Audit Tasks?," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 108-131, March.
    15. Libby, Robert & Rennekamp, Kristina M. & Seybert, Nicholas, 2015. "Regulation and the interdependent roles of managers, auditors, and directors in earnings management and accounting choice," Accounting, Organizations and Society, Elsevier, vol. 47(C), pages 25-42.
    16. Kang, Yoon Ju & Trotman, Andrew J. & Trotman, Ken T., 2015. "The effect of an Audit Judgment Rule on audit committee members’ professional skepticism: The case of accounting estimates," Accounting, Organizations and Society, Elsevier, vol. 46(C), pages 59-76.
    17. Jones, Keith T. & Hunt, Steven C. & Chen, Clement C., 2008. "Auditors’ performance evaluations: An experimental analysis of the effects of initial impressions and task-specific experience on information later recalled," Accounting forum, Elsevier, vol. 32(3), pages 213-224.
    18. Francesco Bogliacino & Cristiano Codagnone & Giuseppe Alessandro Veltri & Amitav Chakravarti & Pietro Ortoleva & George Gaskell & Andriy Ivchenko & Francisco Lupiáñez-Villanueva & Francesco Mureddu & , 2015. "Pathos & Ethos: Emotions and Willingness to Pay for Tobacco Products," PLOS ONE, Public Library of Science, vol. 10(10), pages 1-25, October.
    19. Baginski, Stephen P. & Demers, Elizabeth & Kausar, Asad & Yu, Yingri Julia, 2018. "Linguistic tone and the small trader," Accounting, Organizations and Society, Elsevier, vol. 68, pages 21-37.
    20. Trenton G. Smith, 2004. "The McDonald’s Equilibrium. Advertising, empty calories, and the endogenous determination of dietary preferences," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 23(3), pages 383-413, December.

    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:spr:grdene:v:23:y:2014:i:6:d:10.1007_s10726-013-9371-5. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.