Competence Trust, Goodwill Trust and Negotiation Power in Auditor-Client Relationships

Daniela Maresch*, Ewald Aschauer, Matthias Fink

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

Purpose
The purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.

Design/methodology/approach
Two experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.

Findings
The results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.

Practical implications
The findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.

Originality/value
The study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.
Original languageEnglish
JournalAccounting, Auditing and Accountability Journal
ISSN0951-3574
DOIs
Publication statusE-pub ahead of print - 22. Nov 2019

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Auditors
Goodwill
Chief financial officer
Auditing
Experiment
Integrity
Threat
Liability
Materiality
Design methodology
Benevolence
Audit

Keywords

  • Auditor-client relationship
  • Disagreement
  • Negotiation
  • Trust

Cite this

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title = "Competence Trust, Goodwill Trust and Negotiation Power in Auditor-Client Relationships",
abstract = "PurposeThe purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.Design/methodology/approachTwo experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.FindingsThe results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.Practical implicationsThe findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.Originality/valueThe study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.",
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author = "Daniela Maresch and Ewald Aschauer and Matthias Fink",
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Competence Trust, Goodwill Trust and Negotiation Power in Auditor-Client Relationships. / Maresch, Daniela; Aschauer, Ewald; Fink, Matthias.

In: Accounting, Auditing and Accountability Journal, 22.11.2019.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Competence Trust, Goodwill Trust and Negotiation Power in Auditor-Client Relationships

AU - Maresch, Daniela

AU - Aschauer, Ewald

AU - Fink, Matthias

PY - 2019/11/22

Y1 - 2019/11/22

N2 - PurposeThe purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.Design/methodology/approachTwo experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.FindingsThe results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.Practical implicationsThe findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.Originality/valueThe study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.

AB - PurposeThe purpose of this paper is to investigate how competence trust (i.e. trust regarding the ability of the counterpart) and goodwill trust (i.e. trust regarding the benevolence and integrity of the counterpart) affect the probability that the auditor or the client stand up to the respective negotiation partner’s position in situations of disagreement in the auditing relationship.Design/methodology/approachTwo experiments were conducted, one with 149 auditors and one with 116 chief financial officers (CFOs). Both auditors and CFOs had to indicate the likelihood that they stand up to the other party’s preferred position in a disagreement on the materiality of unrecorded liabilities. The data derived from these experiments were analyzed using hierarchical OLS.FindingsThe results indicate that both auditors and CFOs who take their respective negotiation partner in the audit for highly competent are less likely to stand up to them in situations of disagreement. Interestingly, goodwill trust appears to be irrelevant for the negotiation outcome.Practical implicationsThe findings are highly relevant for regulators, because they inform about the crucial importance of competence trust for the auditing negotiation outcome and thus put the so-called “trust-threat” into perspective.Originality/valueThe study adds to the literature on the role of the context for auditor-client negotiations by exploring the role of two distinct forms of trust on the outcome of these negotiations.

KW - Auditor-client relationship

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KW - Negotiation

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JO - Accounting, Auditing and Accountability Journal

JF - Accounting, Auditing and Accountability Journal

SN - 1368-0668

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