Abstract

http://ssrn.com/abstract=2152538
 


 



The Role of Auditors, Non-Auditors, and Internal Tax Departments in Corporate Tax Aggressiveness


Kenneth J. Klassen


University of Waterloo - School of Accounting and Finance

Petro Lisowsky


University of Illinois at Urbana-Champaign - Department of Accountancy

Devan Mescall


University of Saskatchewan

May 22, 2013


Abstract:     
Using confidential data from the Internal Revenue Service (IRS) on who signs the corporate tax return, we investigate whether the party primarily responsible for preparing a corporation’s tax return — the auditor, the external non-auditor, or the internal tax department — is related to that corporation’s tax aggressiveness. We find that both internally prepared tax returns and external non-auditor-prepared tax returns claim more aggressive tax positions than returns prepared by the company’s auditors. Given that preparer type is informative of tax aggressiveness, we also evaluate the usefulness of publicly disclosed tax fees to infer these parties. In a surprising result, we show that publicly disclosed tax fees paid to a company’s auditor do not provide information sufficient to replicate our core results, and that using tax fees to classify companies according to whether their auditor provides both services yields total error rates that exceed 60 percent. Our findings are important to understanding the advisory role that external tax preparers, including auditors, play in the tax compliance choices of firms, and the extent to which inferences using tax fees can be made about these parties.

Number of Pages in PDF File: 53

Keywords: tax preparer, auditor, tax fee, FIN 48, tax reserve, tax aggressiveness

JEL Classification: H25, M41

working papers series


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Date posted: September 26, 2012 ; Last revised: May 22, 2013

Suggested Citation

Klassen, Kenneth J. and Lisowsky, Petro and Mescall, Devan, The Role of Auditors, Non-Auditors, and Internal Tax Departments in Corporate Tax Aggressiveness (May 22, 2013). Available at SSRN: http://ssrn.com/abstract=2152538 or http://dx.doi.org/10.2139/ssrn.2152538

Contact Information

Kenneth Klassen
University of Waterloo - School of Accounting and Finance ( email )
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)
Petro Lisowsky (Contact Author)
University of Illinois at Urbana-Champaign - Department of Accountancy ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Devan Mescall
University of Saskatchewan ( email )
Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
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