How Do Auditors Cope with Clients’ Persuasion Attempts?

Speaker

Kris Hoang

A.B. Freeman School of Business , Tulane University

Abstract

Client explanations are an important source of audit evidence, but researchers and regulators are concerned that auditor overreliance on management representations hinders audit quality (e.g., Trompeter and Wright 2010; PCAOB 2012). We conduct an experiment with 85 auditors to investigate how they respond when clients use a persuasion tactic to explain a material revenue increase. Applying the persuasion knowledge model (Friestad and Wright 1994), we predict and find that when the client explicitly expressed confidence in having sufficient evidence supporting revenue recognition, auditors believe that the client attempted to persuade them. We also manipulate the strength of pressure to achieve high client service satisfaction and, consistent with heightened skepticism towards evidence, we find that auditors believe the client tried to persuade them even without the persuasion tactic. We observe the type of additional evidence auditors seek, and we find auditors plan to obtain independent, third party confirmation of the revenue to cope with the persuasion tactic only when they experience lower client service pressure. This evidence suggests that auditors possess persuasion knowledge and professional skepticism to perceive and cope with a client’s attempt to persuade them, but they do not gather more powerful audit evidence when under pressure to avoid displeasing the client.

This seminar is organised by the Erasmus Accounting Research Group.