Negotiations, Deadlines, and Auditing: Experimental Evidence

BRYAN K. CHURCH Georgia Institute of Technology - Accounting Area PING ZHANG University of Toronto - Joseph L. Rotman School of Management

Abstract:

This study uses an experimental economics methodology to examine bargaining behavior in a setting analogous to one in which the auditor and manager negotiate financial statement values. We construct a two-player negotiation game that captures an important feature of auditing: uncertainty in the auditor's payoff, where the payoff is potentially negative. We examine whether uncertainty affects the outcome of the negotiation process. Our results indicate that uncertainty affects the terms of agreement, but not the frequency of non-agreements. On average, negotiated settlements are more conservative when the auditor's payoff includes an uncertain component.

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