The agreement between auditor and client is an essential part of the auditing process. The agreement details the scope of the audit, limits access to certain information, and establishes a legal basis for the relationship. In addition, it helps to prevent scope creep and ensure that the audit stays within its predetermined boundaries. It also sets expectations on both sides and reduces the risk of misunderstandings. An engagement letter usually outlines the services to be rendered, price, and time frame for the audit.
Several studies have compared negotiation behavior between auditors and clients. These studies have found that in a negotiation context, clients are more flexible and more likely to trade off one issue for another. They also tend to make more use of the bid high/concede later strategy than auditors do. Nevertheless, they also tend to be less likely to use the threat of resigning as a bargaining tool in negotiations.
Clients appear to want an added-value service with a trusting and long-term relationship, while auditors need to remain independent. The resulting tension between these two desires can lead to disagreements between the parties. These disagreements can be difficult to resolve due to the lack of a clear understanding of each party’s objectives and needs in the relationship.
Conflicts may arise from a number of factors including miscommunication, changing business circumstances, and differing views on what is relevant in an audit. Disagreement between the auditor and management may also occur due to different interpretations of complex, imprecise, or controversial accounting procedures.