The Influence of Perspective Taking Encouraged by the Audit Committee on Auditor and Client Judgments during Accounting Disputes

We examine the influence of an audit committee (AC) that encourages auditors (partners and managers) and clients (CFOs and controllers) to consider an accounting dispute from the other party's perspective. Experiment 1 suggests this approach leads to a higher likelihood of agreement and greater concessionary behavior than an AC that does not encourage perspective taking. Perspective taking also impacts the negotiators in different ways. Auditors' solution sets (concessions less reservation price) shift closer to the client's desired adjustment, while clients' solution sets get wider, suggesting greater flexibility. When the AC subsequently provides a resolution recommendation to all negotiators, the AC's initial approach carries over and impacts the negotiators' subsequent behavior. We support these findings in Experiment 2, which was designed to rule out a potential confound and to use a different perspective taking manipulation. This paper extends negotiation research and has implications for practitioners, regulators, and those charged with governance.