The Association Between Changes in Auditor Provided Tax Services and Long-Term Corporate Tax Avoidance

53 Pages Posted: 21 Jan 2010 Last revised: 5 Dec 2012

See all articles by Brian Hogan

Brian Hogan

University of Pittsburgh - Accounting Group; Northeastern University - College of Business Administration

Tracy Noga

Bentley University

Date Written: July 10, 2012

Abstract

This study examines the long-term impact on taxes paid by firms in the time period following the passage of The Sarbanes-Oxley Act of 2002. Legislators, concerned about auditor independence impairment, eliminated the provision of certain non-audit services by auditing firms and required audit committee pre-approval for tax services. As a result, firms decreasingly engaged their audit firms for tax services, instead possibly turning to other accounting firms or internal tax planning, even though information efficiencies may exist by combining the audit-tax function (i.e. knowledge spillover (Gleason and Mills 2011)). Utilizing a sample of 2,240 unique firms covering 2003-2009, we find an economically and statistically significant long-term negative relationship between firm reductions in auditor-provided tax services (APTS) and taxes paid. Further, a portion of this benefit is lost for some firms when returning to their auditor for tax services after a short break. In summary, firms who engage their audit firms for tax services continue to obtain benefits. Firms that reduce or eliminate their APTS, even if retaining other accounting firms for tax engagements, on average pay more taxes over the long-term.

Keywords: tax avoidance, taxes paid, tax fees, tax, tax rates

JEL Classification: H20, H25

Suggested Citation

Hogan, Brian and Noga, Tracy, The Association Between Changes in Auditor Provided Tax Services and Long-Term Corporate Tax Avoidance (July 10, 2012). Available at SSRN: https://ssrn.com/abstract=1539637 or http://dx.doi.org/10.2139/ssrn.1539637

Brian Hogan (Contact Author)

University of Pittsburgh - Accounting Group ( email )

United States
412-624-1315 (Phone)

Northeastern University - College of Business Administration ( email )

360 Huntington Ave.
Boston, MA 02115
United States
617-373-3889 (Phone)

Tracy Noga

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

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