Abstract

http://ssrn.com/abstract=1425697
 
 

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Do Complexity, Governance, and Auditor Independence Influence Whether Firms Retain Their Auditors for Tax Services?


Dennis R. Lassila


Texas A&M University - Department of Accounting

Thomas C. Omer


University of Nebraska at Lincoln - School of Accountancy

Marjorie K. Shelley


University of Nebraska at Lincoln - School of Accountancy

Murphy Smith


Murray State University - College of Business

June 25, 2009

Journal of the American Taxation Association, Spring 2010

Abstract:     
This study examines factors that influenced public companies to retain or dismiss their audit firms as tax service providers during the years immediately surrounding the passage of the Sarbanes-Oxley Act (SOX) in 2002. We find a positive relation between a company’s tax and operating complexity and the probability that it retained its auditor-provided tax services, suggesting that complexity increases the potential benefits from knowledge spillover relative to the costs from perceived auditor independence impairment. We find a positive relation between the strength of a company’s corporate governance and the probability that it would retain auditor-provided tax services, suggesting that companies with strong governance expected benefits from knowledge spillover to exceed costs from perceived auditor independence impairment. Although we find no direct relation between auditor tenure and the decision to retain auditor-provided tax services, we do find a significant negative association between auditor retention and high non-tax NAS fees and between auditor retention and the joint effect of long auditor tenure and high non-tax NAS fees. Thus firms with low auditor independence and long audit tenure are less likely to retain their auditor for tax services than firms with high non-tax NAS fees alone.

Keywords: governance, auditor independence, tax services, complexity, nonaudit services

JEL Classification: H25, M40, M41, M49

Accepted Paper Series


Not Available For Download

Date posted: June 25, 2009  

Suggested Citation

Lassila, Dennis R. and Omer, Thomas C. and Shelley, Marjorie K. and Smith, Murphy, Do Complexity, Governance, and Auditor Independence Influence Whether Firms Retain Their Auditors for Tax Services? (June 25, 2009). Journal of the American Taxation Association, Spring 2010. Available at SSRN: http://ssrn.com/abstract=1425697

Contact Information

Dennis R. Lassila
Texas A&M University (TAMU) - Department of Accounting ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845- 4584 (Phone)
Thomas C. Omer (Contact Author)
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Marjorie Shelley
University of Nebraska at Lincoln - School of Accountancy ( email )
307 College of Business Administration
Lincoln, NE 68588-0488
United States
Murphy Smith
Murray State University - College of Business ( email )
109 Business Building
Murray, KY 42071-3314
United States
270-809-4181 (Phone)
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