Client negotiation strategy spillover to integrated audit judgments

Sanaz Aghazadeh, Tamara Lambert, Yi Jing Wu

Research output: Contribution to journalArticlepeer-review


Purpose: This study aims to explore the effect of negotiating audit differences on auditors’ internal control deficiency (ICD) severity assessments, an ensuing, non-negotiated judgment, in an integrated audit. Design/methodology/approach: The experiment manipulates the client’s concession timing strategy as either immediate or gradual, holding the outcome constant. A total of 34 auditors (primarily managers) resolve an audit difference with the client. Findings: The client’s concession timing strategy during the negotiation of an audit difference spills over to affect auditors’ severity assessment of a related ICD. Auditors judged the ICD severity to be higher (lower) in the immediate (gradual) condition. Client retention risk inferences mediate this effect. Research limitations/implications: The effect on auditors’ ICD severity assessments may not ultimately affect the audit report. Participants did not control their negotiation strategy, allowing the client’s negotiation strategy and the outcome to be held constant; it is possible that interactive effects between the client and auditor’s strategy might affect the study’s implications. Practical implications: Features of the auditor–client negotiation process may influence auditors’ downstream, post-negotiation judgments and may therefore help to explain empirical evidence and Public Company Accounting Oversight Board inspection findings that show auditors often fail to identify an internal control material weakness after identifying a financial statement misstatement. Originality/value: This paper expands current negotiation research by exploring the impact of inferences made based on counterparty concession strategy for downstream, non-negotiated judgments and current integrated audit research by identifying client retention perceptions as a driving factor of lower ICD severity assessments.

Original languageEnglish
Pages (from-to)1261-1278
Number of pages18
JournalManagerial Auditing Journal
Issue number9
StatePublished - Dec 15 2020


  • Auditor–client negotiations
  • Client retention risk
  • Integrated audit
  • Internal control deficiency assessment


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