Abstract:*

Regulators have tried to enhance audit quality by addressing the familiarity threat in long-standing auditor-client relationships. However, there are benefits to strong auditor-client relationships because financial statements result from joint efforts by clients and their auditors. We conducted a field study of eight auditor selection processes at large Dutch companies from 2019 to 2022. Through semi-structured interviews with 29 key stakeholders and document analysis, we employ Social Exchange Theory (SET) to explore the interpersonal dynamics of auditor selection processes. Our findings reveal that clients and auditors value a cooperative auditor-client relationship, and they evaluate the quality of this relationship based on observed demonstrations of trust and commitment. We find that clients and auditors engage in interpersonal, reciprocal social exchanges to build this relationship during the auditor selection process. These exchanges start before the tender and continue until the client selects their auditor. Furthermore, clients and auditors rely on signals of credibility and compatibility before engaging in the auditor-client relationship, which influences their selection decision. This study contributes to literature and practice by shedding light on the dynamics of auditor-client relationships during the selection process, before the audit starts.

*Co-authored with J. Vandennieuwenhuysen and K. Hardies (both University of Antwerp), M.L. Vandenheute (Vrije Universiteit Brussel) and M. van Rinsum (Erasmus University Rotterdam)

General information:

Attendance to this seminar is possible by invitation only. Please send an e-mail to secbs-abs@uva.nl if your are interested in attending this seminar.