Auditor-Provided Tax Services and Earnings Management in Tax Expense: The Importance of Audit Committees

46 Pages Posted: 22 Sep 2012 Last revised: 28 Jun 2014

See all articles by Ling Lei Lisic

Ling Lei Lisic

Virginia Polytechnic Institute & State University - Pamplin College of Business

Date Written: April 2014

Abstract

Regulators do not prohibit auditors from providing tax services to their audit clients, provided these services are preapproved by audit committees. I examine whether the association between auditor-provided tax services and earnings management in tax expense varies with audit committee effectiveness. I develop a composite proxy for audit committee effectiveness by combining six audit committee characteristics. I find that auditor-provided tax services are less positively associated with earnings management in tax expense as audit committee effectiveness increases. My findings suggest that the knowledge spillover effect of auditor-provided tax services is more likely to dominate the independence impairment effect when auditor-provided tax services are preapproved by more effective audit committees.

Keywords: audit committee, corporate governance, earnings management, non-audit fees, tax expense

JEL Classification: G30, H25, M41, M42

Suggested Citation

Lisic, Ling Lei, Auditor-Provided Tax Services and Earnings Management in Tax Expense: The Importance of Audit Committees (April 2014). Journal of Accounting, Auditing and Finance, Vol. 29, Issue 3, pp.340-366, 2014. Available at SSRN: https://ssrn.com/abstract=2150374 or http://dx.doi.org/10.2139/ssrn.2150374

Ling Lei Lisic (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States

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