Being Mean to an Auditor Hurts Audit Quality, and It Happens a Lot

Auditors frequently face client incivility -- “low-intensity deviant behavior with ambiguous intent to harm the target” – and, when they do, they are less likely to challenge aggressive financial reporting.  There are, however, coping strategies that may reduce the adverse effects of client incivility on the auditor’s judgment. These are some of the findings of The Influence of Client Incivility and Coping Strategies on Audit Professionals’ Judgments, a survey and experimental study that Tim D. Bauer (University of Waterloo), Sean M. Hillison (Virginia Tech), and Ala Mokhtar (University of Waterloo) conducted. Their paper appears in a recent issue of Contemporary Accounting Research.

Frequency of Incivility Directed at Auditors

The authors surveyed 70 auditors and found that most have encountered client incivility. Over 75 percent “report instances where clients rudely told them how to perform their work or rudely questioned their work procedures, and one third report being subjected to bullying by clients.” Only two respondents (three percent) reported never experiencing any negative client acts.  The three most common negative acts were “receiving an excessively slow response to their requests without good reason (90%), rudely being told when and how to do their work (77%), and rudely having their work procedures questioned (77%).” 

Managers and seniors experienced negative client acts more frequently than either partners or staff. Staff – the most junior members of an engagement team -- reported the fewest negative client acts. “For example, 55% of managers and 53% of seniors reported clients rudely questioning their work procedures at least sometimes, while only 21% of partners and 14% of staff report such behavior.”  The authors speculate that partners may report fewer experiences of incivility over their careers because they have forgotten what it was like to be a senior or manager and have “become out-of-touch with their experiences prior to making partner.”

Coping Strategies

The authors also find that auditors react to client hostility with various coping strategies. They divide coping strategies into active, passive, and retaliatory.  “Active coping (e.g., talking to the perpetrator) involves taking direct action to address the stressor, while passive coping (e.g., confiding in a friend) involves managing responses to the stressor.” Retaliation entails scrutinizing the client’s work more carefully. Retaliation is, however, difficult to isolate, since “increasing scrutiny could be viewed as auditors increasing professional skepticism, due to elevated risk assessment, or as a form of revenge; we are unable to identify which reason drove respondents’ behavior.”

The most common active coping strategies are:

• Trying to figure out what the auditor could do to improve the situation (70 percent).

• Taking some actions to improve the situation (67 percent).

• Talking to someone at their accounting firm (e.g., partner or counselor) who could do something about the situation (57 percent).

(In this discussion, percentages represent the share of participants who reported using a particular coping strategy “often or almost always.”  Respondents may have used more than one strategy in response to instances of incivility.)

The most common passive strategies are:

• Concentrating on other areas of their work where things are going better (51 percent).

• Just accepting the situation because it is an expected part of the job (45 percent).

• Talking with someone (e.g., a friend) about how they are feeling (39 percent).

Partners (47 percent) actively talk with the perpetrator more than managers (9 percent), seniors (11 percent), or staff (21 percent). Conversely, managers (73 percent), seniors (61 percent), and staff (42 percent) are more likely to passively accept the situation than partners (16 percent).

Responding to client incivility by scrutinizing the client’s work more carefully – retaliation -- is less frequent than either active or passive responses.  Only 27 percent of respondents reported utilizing retaliation, as defined in the study, in response to uncivil client behavior. 

Experiment – How Incivility and Coping Affect Audit Quality

The authors also conducted an experiment involving 114 practicing senior auditors, in which they exposed auditors to client incivility.  The goal was to examine the relationship between client incivility and auditors’ propensity to challenge aggressive reporting or seek additional information. The study also explored how active or passive coping affected these propensities. 

In the experiment, the client had recorded an inadequate inventory write-down.  After being subjected to incivility and led through various coping strategies, the authors asked subjects what write-down amount they would propose. The researchers’ premise was that auditors who selected a higher write-down amount or requested more information were more likely to challenge aggressive reporting.

The study found that incivility reduced the degree to which the subjects challenged the client’s write-down or sought more audit evidence, although that active coping partially counteracts the effects of the incivility:

“As predicted, we find that auditors’ write-down amounts are lower when they experience client incivility (vs. not) and are not prompted to cope, but increase when they are prompted to cope actively. We find no evidence that amounts increase when auditors are prompted to cope passively. Consistent with the theoretical model, our supplemental results show that auditors’ emotional distress mediates the effect of client incivility on proposed write-down amounts when not prompted to cope, and active coping moderates the effect of emotional distress on this judgment. We also examine auditors’ evidence collection behavior. In line with theory, we find that auditors are less likely to follow up with uncivil clients when not prompted to cope. But coping’s effect in this judgment context is theoretically uncertain, and we find that neither active nor passive coping increases auditors’ likelihood of following up with uncivil clients.”

Lessons for Audit Firms

The study authors believe that their work provides lessons for audit firms. “For audit firms committed to maintaining high audit quality, it is critical to assess the risks associated with serving uncivil clients. Client incivility pervades the audit profession, and there is no reason to believe that it will diminish.”  Since active coping mitigates some the effects of uncivil client behavior, this research suggests firms should encourage active coping.  Audit firms may also want to consider a broader set of remedies, such as training or dialogue on client incivility and coping, “to ensure auditors are aware of different coping responses, how to engage in them, and which ones could benefit their judgments and mental well-being the most.”

Audit Committee Takeaways

Audit committees should be alert to incivility directed at audit personnel by company employees.  Some employees find it expedient to try to intimidate the auditor into accepting dubious client accounting decisions. However, the long-term consequences of this approach can include the need to restate, an SEC investigation, and/or private litigation against the company and its directors.  Audit committees should encourage the engagement team to bring instances of attempted intimidation to the committee’s attention and ensure that management understands that such behavior will not be tolerated.