Are Auditor Negotiations Impaired During Depleting Times? The Importance of Client Interactions and Individual Attributes

We examine the interactive effects of self-regulatory depletion and individual attributes on auditors' and managers' financial statement negotiation behaviors and outcomes. This study is important because these negotiations occur under depleting conditions, and prior literature suggests depletion impairs auditors' effectiveness. We theorize that absent depletion, behaviors align with incentives such that managers report self-interested biased positions and auditors constrain bias, even if those behaviors are less natural (such as for lower Dark Triad managers and lower trait skeptic auditors). However, when depleted, we predict behaviors align more with individual attributes because overriding one's natural dispositions requires effortful self-regulation. In an abstract experiment with incentives, we manipulate depletion and measure student participants' attributes. Findings support our predictions. Absent depletion, findings reflect incentive-consistent behaviors, regardless of individual attributes. Whereas, when depleted, findings reflect individual attributes. Specifically, depletion reduces lower Dark Triad managers' reporting bias while not affecting higher Dark Triads' reporting bias. Moreover, while depletion decreases lower skeptic auditors' constraining of bias, it increases higher skeptics' constraining of bias. Finally, the interesting effects of depletion on joint manager-auditor outcomes highlight the importance of our interactive negotiation setting. While depletion never increases outcome bias, depletion reduces bias in negotiations between lower Dark Triads and higher skeptics, suggesting depletion may be more detrimental to managers' financial reporting goals than auditors' goals. Collectively, our results suggest that the concern about depletion negatively impacting auditors' negotiation effectiveness is likely alleviated for higher skeptic auditors as well as weakened during negotiations with lower Dark Triad managers