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
University of Illinois at Urbana-Champaign - Department of Accountancy
University of Saskatchewan
July 31, 2014
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
Date posted: September 26, 2012 ; Last revised: August 23, 2014
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