The effects of auditor rotation on client management's negotiation strategies

Purpose – The purpose of this paper is to examine how audit partner rotation impacts the negotiation strategies client management intends to use to resolve a financial reporting issue. Design/methodology/approach – An experiment that manipulates between participants on whether the audit partner rotates from the prior fiscal year (rotation versus non-rotation) is conducted to test the theoretical implications of rapport. Participants with a high level of business and managerial experience indicate their intended use of 25 reliable negotiation tactics that client management may use to resolve a financial reporting issue with the external auditor. These tactics underlie three distributive (contending, compromising, conceding) and two integrative (problem solving, expanding the agenda) negotiation strategies. Findings – The results of the study indicate that client management is less contentious and more concessionary (i.e. accommodating) to a newly rotated audit partner, as compared to an audit partner that has established rapport with client management. Further, client management is more willing to intend using integrative and compromising (i.e. co-operative) negotiation strategies when negotiating with an audit partner with established rapport in contrast to a newly rotated audit partner. Research limitations/implications – These findings underscore the merits and costs of audit partner rotation in auditor-client management (ACM) negotiations and document that partner rotation affects not only auditor behaviour, but also the behaviour of client management. Originality/value – This paper is the first that considers how developing and maintaining rapport impacts ACM negotiations. The study provides empirical evidence to further inform debates over auditor rotation.