The impact of retention incentives and client business risks on auditors' decisions involving aggressive reporting practices

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Date: Sept. 2003
Publisher: American Accounting Association
Document Type: Article
Length: 6,832 words

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Abstract :

This research examines the individual and interactive effects of client retention incentive and client business risks on auditors' decisions regarding whether to accept clients' aggressive reporting practices. Fifty-five audit seniors and managers from all of the Big 5 accounting firms participated in this experimental study. We find a significant main effect of client business risks and an interactive effect between client retention incentives and client business risks on auditors' decisions. Specifically, the results indicate that, when a client's business risks are high, auditors tend to scrutinize such risks and carefully evaluate a client's proposed accounting practices. However, when there is less concern over a client's business risks, auditors may be willing to accept the client's aggressive reporting proposal if retention incentives are high. Keywords: client retention incentives; client business risks; aggressive reporting. Data Availability: Available from the first author upon request.

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Gale Document Number: GALE|A112539672