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Introduction
Scholars have emphasized that financial statements are not merely altered in order to adopt all adjustments proposed by the auditor, but rather are the result of negotiations between the auditor and the client firm’s management (client) (e.g. Antle and Nalebuff, 1991; Wright and Wright, 1997). These negotiations are characterized by information asymmetries between the auditor and the client, which may lead to suboptimal negotiation outcomes and thus to suboptimal audits. The key to reduce these information asymmetries is to share information (e.g. Thompson, 1991; Butler, 1999). However, auditors and clients often hesitate to do so. This is because clients might refrain from timely and completely sharing all relevant information due to concerns that in the audit negotiations the information provided could be used against their interests (Rennie et al., 2010; Gibbins et al., 2010), and the auditor might refrain from providing advice and might merely ensure that the financial statements technically comply with the relevant accounting standards if he is unsure about how the client may use the information provided (Bammens and Collewaert, 2014). Similarly, auditors have been found to reward clients who show a proactive information-sharing behavior in the audit with rather taking the role of an advisor than a policeman, thus they reciprocate their clients’ information-sharing behavior (McCracken et al., 2008).
Trust is regarded as a vital element to decrease behavioral uncertainties and stimulate exchange relationships (e.g. Lewicki and Stevenson, 1997; Tomlinson et al., 2009), such as auditor-client relationships (e.g. Aschauer et al., 2017; Richard, 2006). Clients who perceive their auditor as trustworthy will be more likely to provide the information required by the auditor in order to gain an accurate picture of the firm, and auditors who perceive their client as trustworthy will be more willing to share information required to solve accounting issues. In turn, the increase in information exchange between the auditor and the client can also affect the likelihood that the auditor or the client stands up to the accounting treatment favored by the interaction partner in an auditor-client negotiation.
In spite of the important role that trust may play in the outcome of auditor-client negotiations, to the best of our knowledge only Kerler and Brandon (2010) have investigated this relationship so far....