What would be the most effective tactic in persuading the ceo to accept the audit?

Always eager to retain their clients’ business, independent auditors have a powerful motive to avoid ruffling the feathers of senior corporate finance and accounting executives.

Sanaz Aghazadeh

Thus, auditors might fall silent when a client makes an overly bullish statement about next year’s earnings. Or they might shy away from asking a finance chief for more information. But such timidity may short-change clients who need a rigorous audit to protect them against costly restatements. CFOs thus may want straight talk from their auditors – and if they do, they had better be aware of how forcefully they talk to them.

During periods when clients are evaluating their auditors, finance chiefs should know, for instance, that auditors are likely to become suspicious about why CFOs and controllers are speaking so confidently to them about their financials. “Are they trying to persuade us not to look so closely at how they recognize revenue?” auditors might be asking themselves.

In periods that follow auditor evaluations, on the other hand, auditors are likely to hear confident client statements like “I am absolutely certain that we’ll have a signed contract by the end of the quarter” as mere statements of fact, rather than attempts to persuade the auditor. In short, auditors get less paranoid when the pressure’s off.

Kris Hoang

In any case, senior corporate finance and accounting executives interested in getting reality checks from their auditors should know that those auditors are under stiff pressure to satisfy them and retain their business – and that such pressure may make auditors more prone to give their clients less-than-candid assessments.

Those are the main takeaways for CFOs of a recent study that looks at auditor sensitivities to the language their clients use. “Confidence is something that finance people and management leaders use without thinking about it,” says Sanaz Aghazadeh, an assistant professor of accounting at Lehigh University and a co-author of the study. But “it may be perceived as a persuasion tactic by the auditor.”

For the study, “Does Pressure to Satisfy Clients Influence How Auditors Perceive and Respond to Client Persuasion?”, Aghazadeh and Kris Hoang, an assistant professor of business at Tulane University, looked at how 85 auditors with varying levels of experience from large international accounting firms react to persuasive tactics from their clients and pressure to accommodate their wishes.

Among other things, the auditors were asked to respond to these expressions of client confidence: “I am absolutely certain,” “I know for a fact,” and “I am very confident.”

The professors conclude that client-services pressure – the kind that may occur when a senior audit partner tells auditors that the client will be completing a satisfaction survey at the end of the audit – changes how the auditor interprets a client’s expression of confidence in the numbers. Auditors under such pressure “perceive client confidence as a cue to a persuasion attempt, rather than as an innocuous message,” according to the study.

But such skepticism about the client’s motives doesn’t spur auditors to fact-check the corporation’s numbers by consulting its vendors or customers. Auditors “only seek more powerful evidence when they encounter persuasive language under weaker client service pressure,” the researchers find.

“Thus, even though stronger client service pressure sensitizes auditors to persuasion, it simultaneously deters auditors from pursuing evidence from a more objective source,” they add.

Tossing out the Auditors

When auditors begin an audit, they consult with the corporation’s senior management first. “And management might have some sort of motive to either get the auditor out of their office, to stop collecting evidence,” says Aghazadeh, or “to get the auditor to see the accounting as they do.”

To be sure, auditors are required by the Public Company Accounting Oversight Board to conduct audits in a skeptical manner under all circumstances. “But auditors also are hired by the client and the client does complete satisfaction surveys on the auditor’s work,” she says.

When such surveys are being completed, auditors might become alert to clients’ possible perception “that this is a time where persuasion might be more effective, so they might be more likely to use it,” according to Aghazadeh. “But it seems that they’re not acting on this suspicion because at the same time, they still want to keep the client happy.”

To get a sounder audit, CFOs should be more willing to provide whatever confirming information auditors request, the professor recommends. Because they’re so busy with their other obligations, finance chiefs “have a tendency to stick an auditor in a room, give him a bunch of documents in a huge binder and hope that they leave [the CFO] alone,” she says.

But if they’re more forthcoming about the information, then the auditors “wouldn’t be too concerned about how invasive or bothersome they are being to the client.”

It’s also important for the CFOs to encourage face-to-face communication with auditors particularly with younger auditors. That’s because the latter tend to rely on texts and emails to communicate “rather than really getting in the face of the client,” she adds.

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