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The impact of regulatory scrutiny on the resolution of material accounting issues

Although auditor-client interaction is considered an important determinant of financial reporting outcomes, concerns often arise that close working relationships between auditors and client managers can impair auditor independence. Several high-profile accounting scandals have intensified these concerns, impaired investors’ confidence in the financial reporting process and motivated regulators to respond with reforms to enhance auditors’ responsibility for maintaining financial reporting quality. Subsequent reports from the financial press indicate that these reforms had a chilling effect on the auditor-client relationship, but academic research has not examined the influence of regulatory scrutiny on the resolution of material accounting issues between auditors and managers. This study contributes to the literature by investigating the impact of regulatory scrutiny on auditors’ approach to resolving material accounting issues with managers and examining whether this impact is moderated by managers’ commitment to their preferred accounting. Auditors’ interaction approach involves developing arguments and recommendations in response to managers’ accounting preferences in an attempt to persuade managers to adopt more appropriate accounting. The results of an experiment with experienced auditors indicate that regulatory scrutiny and managers’ commitment to their preferred accounting interact to influence auditors’ interaction approach. Specifically, when regulatory scrutiny is low, reciprocity norms determine auditors’ interaction approach but, as regulatory scrutiny increases, accountability demands dominate auditors’ reciprocity motivations and modify auditors’ responses to managers’ accounting preferences. These results provide evidence that regulatory scrutiny introduces tension into the auditor-client relationship, but the effects of this tension on the resolution of material accounting issues is contingent on the interpersonal context. / Accounting

Identiferoai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:AEU.10048/448
Date11 1900
CreatorsPomeroy, Bradley
ContributorsGibbins, Michael (Accounting), Jamal, Karim (Accounting), Schimel, Jeff (Psychology), Tiessen, Peter (Accounting), Suddaby, Roy (Strategic Management and Organization), Kennedy, Jane (Accounting, University of Washington)
Source SetsLibrary and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada
Languageen_US
Detected LanguageEnglish
TypeThesis
Format654479 bytes, application/pdf

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