Does Auditor Assurance of Client Prosocial Activities Affect Auditor-Client Negotiations?

Abstract

We draw on theory from moral licensing and image motivation to test the prediction that, when auditors provide assurance over a pro-social activity that is roughly analogous to reported corporate social responsibility (CSR), reporters become more aggressive in subsequent reporter-auditor negotiations. In Part 1 of a two-part interactive experiment, participants in the reporter role answer trivia questions. Our first manipulation is whether correct answers result in a donation to charity (i.e., a pro-social benefit) or a personal gain to the reporter. Our second manipulation is whether participants in the auditor role observe and verify reporters’ Part 1 efforts. In Part 2, reporter/auditor pairs negotiate an estimate for an uncertain amount, with higher reported estimates increasing the likelihood that the reporter receives a bonus and the auditor incurs a penalty. We find that reporters propose more aggressive estimates and achieve more favorable negotiated outcomes in Part 2 only when the Part 1 condition combines a pro-social activity with auditor assurance.