Semester of Graduation
Spring 2026
Degree Type
Dissertation
Degree Name
Business Administration
Department
School of Accountancy
Committee Chair/First Advisor
Andrew Trotman
Second Advisor
Divesh Sharma
Third Advisor
Velina Popova
Abstract
This study examines how client power and auditor power interact to affect auditor negotiation judgments. Regulators argue that economic bonds may grant clients power over the auditor, compromising independence and reducing audit quality. Regulations such as the Sarbanes-Oxley Act (2002) and Regulation (EU) 537/2014 (2014) have limited the services auditors can provide to their clients to protect auditor independence. I tested how the client’s and auditor’s power affects auditors’ negotiation judgments in an inventory valuation task. Client and auditor power were analyzed using French and Raven’s (1959) five bases of power. I evaluated negotiation judgments in a 2x2x3 experiment, in which client reward power (i.e. smallest/largest client in terms of audit fees and time) and client coercive power (i.e. seeking or not seeking bids from other audit firms for the following year’s engagement) were manipulated across participants, and auditor power was based on participants’ years of experience, title (i.e. senior auditor, manager, partner), and the size of their firm. I found no significant difference in how auditors interacted with high-fee clients compared to low-fee clients (i.e., client reward power). However, auditors were significantly less likely to seek a sizable write-down when the client was seeking bids for the following year’s engagement from competitors (i.e., client coercive power), and further less likely with increasing auditor experience and higher-ranking titles. Auditors from smaller firms suggested smaller write-downs than auditors from Big 4 or second-tier firms. The effect of smaller firms decreased with experience, though it was exacerbated by inexperience.