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http://ssrn.com/abstract=2152538
 
 

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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

July 31, 2014


Abstract:     
Using confidential data from the Internal Revenue Service on who signs a corporation’s tax return, we investigate whether the party primarily responsible for the tax compliance function of the firm — the auditor, an external non-auditor, or the internal tax department — is related to the corporation’s tax aggressiveness. We report four key findings: (1) firms preparing their own tax returns or hiring a non-auditor claim more aggressive tax positions than firms using their auditor as the tax preparer; (2) firms select their auditor for tax preparation if they are smaller, less international, higher growth, and use their auditors for extensive non-audit, non-tax work; (3) auditor-provided tax services are related to tax aggressiveness even after considering tax preparer identity, which supports and extends prior research using tax fees as a proxy for tax planning; and (4) Big Four tax preparers in particular are linked to less tax aggressiveness when they are the auditor than when they are not the auditor. Our findings help policymakers and researchers better understand the selection of tax compliance intermediaries, including those with dual roles via audits, and the effects of this choice on corporate tax outcomes.

Number of Pages in PDF File: 50

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

JEL Classification: H25, M41

working papers series





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Date posted: September 26, 2012 ; Last revised: August 23, 2014

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 (July 31, 2014). 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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