Audit Fees and Book-Tax Differences

Posted: 27 May 2011

See all articles by Michelle Hanlon

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Gopal V. Krishnan

American University - Accounting

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 23, 2011

Abstract

We investigate whether book-tax differences are associated with higher audit fees, a proxy for auditor risk assessments and auditor effort. Our evidence suggests that there is a significantly positive relation. Further, this association is larger for firms that appear to have managed earnings (i.e., have high accruals) relative to those that are tax avoiders (i.e., have low cash effective tax rates). Our evidence is consistent with large book-tax differences representing an observable proxy for earnings management that is associated with auditor decisions. Our paper contributes to capital market research that examines audit fees as well as other research that examines the usefulness of book-tax differences for market participants.

Keywords: audit fees, book-tax differences, earnings quality

JEL Classification: M41

Suggested Citation

Hanlon, Michelle and Krishnan, Gopal V. and Mills, Lillian F., Audit Fees and Book-Tax Differences (May 23, 2011). Journal of American Taxation Association, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1851843

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-668
Cambridge, MA 02142
United States
617-253-9849 (Phone)

Gopal V. Krishnan

American University - Accounting

United States

Lillian F. Mills (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,323
PlumX Metrics