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The impact of regulatory scrutiny on the resolution of material accounting issues Open Access


Other title
Auditor-client interaction
Type of item
Degree grantor
University of Alberta
Author or creator
Pomeroy, Bradley
Supervisor and department
Gibbins, Michael (Accounting)
Examining committee member and department
Suddaby, Roy (Strategic Management and Organization)
Jamal, Karim (Accounting)
Kennedy, Jane (Accounting, University of Washington)
Tiessen, Peter (Accounting)
Schimel, Jeff (Psychology)
School of Business

Date accepted
Graduation date
Doctor of Philosophy
Degree level
Although auditor-client interaction is considered an important determinant of financial reporting outcomes, concerns often arise that close working relationships between auditors and client managers can impair auditor independence. Several high-profile accounting scandals have intensified these concerns, impaired investors’ confidence in the financial reporting process and motivated regulators to respond with reforms to enhance auditors’ responsibility for maintaining financial reporting quality. Subsequent reports from the financial press indicate that these reforms had a chilling effect on the auditor-client relationship, but academic research has not examined the influence of regulatory scrutiny on the resolution of material accounting issues between auditors and managers. This study contributes to the literature by investigating the impact of regulatory scrutiny on auditors’ approach to resolving material accounting issues with managers and examining whether this impact is moderated by managers’ commitment to their preferred accounting. Auditors’ interaction approach involves developing arguments and recommendations in response to managers’ accounting preferences in an attempt to persuade managers to adopt more appropriate accounting. The results of an experiment with experienced auditors indicate that regulatory scrutiny and managers’ commitment to their preferred accounting interact to influence auditors’ interaction approach. Specifically, when regulatory scrutiny is low, reciprocity norms determine auditors’ interaction approach but, as regulatory scrutiny increases, accountability demands dominate auditors’ reciprocity motivations and modify auditors’ responses to managers’ accounting preferences. These results provide evidence that regulatory scrutiny introduces tension into the auditor-client relationship, but the effects of this tension on the resolution of material accounting issues is contingent on the interpersonal context.
License granted by Bradley Pomeroy ( on 2009-06-29T23:22:08Z (GMT): Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. Where the thesis is converted to, or otherwise made available in digital form, the University of Alberta will advise potential users of the thesis of the above terms. The author reserves all other publication and other rights in association with the copyright in the thesis, and except as herein provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission.
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