The Effects of Performance-based Profit-sharing Schemes and Client Flexibility on Auditors' Judgements
Conference Publication ResearchOnline@JCUAbstract
Prior studies in auditing have examined the impact performance-based profit-sharing schemes (PES) and client's attitude in terms of flexible attitude and inflexible attitude on auditors’ judgements independently, and there is an ex-ante expectation that these two factors will interact in the context of proposed audit adjustments in a prenegotiation setting. Based on theory of motivated reasoning, this study examines whether client attitude will have a smaller effect when auditors’ PES is based on firm-wide scheme as compared to divisional scheme. The findings show that auditors’ PES and client attitude interact to affect auditors’ negotiated behaviour in a simulated setting. Our results exhibit concessionary (i.e., waiving a material audit adjustment) behaviour of experienced auditors from the US. The findings extend the contemporary research on auditor-client negotiation by providing evidence to the literature that PES schemes influence the behaviour of auditors in a simulated negotiation setting. The findings suggest that auditors do not only act as motivated reasoners due to PES schemes since client's attitude may also influence their behaviour.
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Publication Name
Proceedings of the 20th Asian Academic Accounting Association Annual Conference 2023
Volume
FourA 2024
ISBN/ISSN
9772460509010
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Pages Count
13
Location
Khon Kaen, Thailand
Publisher
Asian Academic Accounting Association
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Publisher Location
Kedah, Malaysia
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