External auditors' reliance on management's experts: The effects of an early‐stage conversation and past auditor-client relationship

Abstract

This study examines the impact of an early‐stage conversation with a management's expert on auditors' decisions within the context of auditor-client relationships. We conducted a 2 × 2 between‐subjects experiment with 69 experienced auditors in Australia. Our results suggest that an early‐stage conversation can adversely affect perceived client flexibility towards proposed audit adjustments, particularly under contentious client conditions. Our results further indicate that an early‐stage conversation results in auditors relaxing, which otherwise might be a more contentious approach towards difficult clients. While we do not find direct evidence that auditors succumb to pressure and accept the work of the management's expert without any changes, our results suggest that auditors are willing to propose an adjustment that meets the interests of both auditor and client.