Fifteen Years in the Trenches: Auditor-Client Negotiations Exposed and Explored

Steven Salterio
Queen’s University – Smith School of Business

November 15, 2011


The study of auditor client management negotiations dates back twenty years with the publication of the first analytical model of negotiations in 1991. However, that article made next to no impact until Gibbins, Salterio and their later collaborators began a research program on auditor-client management negotiations in 1996. The purpose of this paper is to review the fifteen years of research on auditor client management negotiation including publishing, for the first time, the theoretical model that underlay their research program. I then review the sequence of published papers focusing on Gibbins, Salterio and their co-authors that led to the acceptance of the premise that the auditor co-created the financial statements and related disclosures with client management. I call this “exposing the phenomena” part of the paper. I then examine the experimental research carried out over the last decade and relate it to both the underlying theoretical model and the descriptive model of auditor client management negotiating, identifying where research has been carried out and where important matters, both descriptively and theoretically, have received less research interest than their importance may warrant. Finally, I provide some thoughts as to how archival researchers may join into this research stream by suggesting the repurposing audit report delay construct as a measure of probability that auditor-client management negotiations took place during the year-end audit. Furthermore, I suggest how this delay measure might be improved by using the newly popular text analysis comparison software that has recently come back in vogue in capital markets research. I call these sections “exploring the phenomena.” I conclude with a brief reminder about the practical significance of auditor-client management negotiations and I urge continued research on this important area; one that may threaten the future existence of audit firms more than any other.

Fifteen Years in the Trenches- Auditor-Client Negotiations Exposed and Explored

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