Auditor-client negotiations over contentious accounting issues can shape reported financial outcomes, yet little is known about how communication dynamics between audit committee (AC) members and auditors influence client negotiation behavior. We conduct an experiment in which experienced financial executives, assuming the role of chief financial officer, negotiate a disputed inventory obsolescence allowance with a simulated audit partner in the presence of an AC member; the AC member's distributive communication style (offensive vs. defensive) and the audit partner's reflective empathy (high vs. low) are manipulated between participants. Drawing on relational framing theory in interpersonal communication, we predict and find that a distributive-offensive AC communication style leads clients to establish their reporting positions and concede less to the auditor's proposed adjustment, unless it is accompanied by high reflective empathy from the audit partner, which neutralizes this resistance. This pattern emerges in the client's initial negotiation position and persists through the final negotiated allowance. Our findings suggest that auditors can use empathetic communication as a strategic tool to defuse the competitive posture that an assertive governance signal may provoke. Overall, our results provide insights into how AC members' and auditors' communication styles jointly shape client negotiation behavior, highlighting the importance of communication strategies in achieving effective audit negotiation outcomes.

Regulators have raised concerns about the quality of component auditors' work. Of particular concern is that component auditors often do not adequately perform procedures and gather enough quality evidence. This failure is likely caused by component auditors' different interpretations of lead auditor instructions and by their lack of responsibility. Our interview findings suggest that component auditors tend to interpret lead auditor instructions concretely because they often receive detailed instructions from lead auditors. We propose that a responsibility prompt reminding component auditors to be aware of their obligations to the group audit engagement can improve their evidence collection. In two experiments, we find that our proposed responsibility prompt can effectively improve component auditors' evidence collection decisions and that this finding holds across different cultural settings. Our third experiment provides evidence that a responsibility prompt improves component auditors' evidence collection when provided to auditors who receive instructions that prime low‐level (but not high‐level) construals. Overall, our findings suggest that prompting component auditors to internalize the responsibility of a group audit engagement is a viable way to improve the quality of group audits.

We examine whether the benefits and consequences of building trust through corporate social responsibility (CSR) vary when the company engages in material or immaterial CSR, and the conditions under which these benefits hold. Our study informs companies about the relative benefits and consequences of engaging in particular types of CSR activities. Prior archival research finds that CSR performance can buffer companies against negative stock reactions caused by subsequent adverse events, such as financial restatements. However, theory suggests that there are boundary conditions for this buffering effect through the multiple dimensions of trust violations. We predict and find using Experiment 1 that positive performance in material CSR enhances competence trust, while positive performance in immaterial CSR enhances integrity trust in the company. We predict and find using Experiment 2 that positive material CSR performance alleviates investors' negative reactions to an error restatement but that this effect does not occur for a fraud restatement. In contrast, positive immaterial CSR performance results in greater negative reactions to a fraud restatement, but this effect does not occur for an error restatement. These effects can be explained through the multiple dimensions of trust and trust violation, in accordance with the schematic model of dispositional attribution. Lastly, a supplementary experiment supports the robustness of our results to the baseline of neutral CSR performance. Our study has important implications for companies and standard setters about the trust‐building effects of engagement in CSR and, more generally, of how CSR issues with different materiality levels buffer against the adverse effects of negative events.

When evaluating the potential financial effects of climate change, investors demand disclosures of the climate‐related risks and opportunities that companies need to manage. We examine how and why management control over climate change performance affects investors' evaluations of such disclosures. In a series of experiments, we find that investors believe that managerial optimism is beneficial and, thus, are more willing to invest when climate‐related disclosures focus on opportunities rather than risks. This effect, however, occurs only when management has high control over the company's future climate change performance. When that control is low, investors believe that managerial realism is beneficial and, thus, are more willing to invest when these disclosures focus on risks rather than opportunities. Our study has implications for companies and standard setters considering the consequences of focusing on either risks or opportunities in climate change reporting and the conditions under which one focus or the other may be beneficial.