Auditor-Provided Tax Consulting, Knowledge Spillovers, and Reported Weaknesses in Internal Control
David G. Harris
Syracuse University - Joseph I. Lubin School of Accounting
University of Hawaii at Manoa
June 6, 2013
We examine whether auditor-provided tax consulting services are associated with tax and non-tax internal control material weaknesses consistent with knowledge spillover benefits. We find a positive association between the amounts of consulting fees paid, which should proxy for the scale and/or scope of the engagements, and tax-related internal control weaknesses. However, we also find that auditor-provided tax consulting is even more strongly associated with a reduced likelihood of non-tax internal control weaknesses. Given these results, we perform several additional tests to evaluate the relative importance of auditor-provided tax consulting to tax versus non-tax internal control weaknesses. Surprisingly, not only is the association between auditor-provided tax services much stronger for non-tax internal control weaknesses, but, in fact, there is no significant benefit to tax internal control weaknesses, whatsoever, after properly accounting for non-tax internal control effects. This finding continues to hold after accounting for the distribution of account- versus company-level ICWs.
Number of Pages in PDF File: 47
Keywords: audit, tax, auditor consulting, auditor independence, internal control weakness
JEL Classification: H23, M41, M49, G34working papers series
Date posted: June 5, 2007 ; Last revised: June 7, 2013
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