The Role of Auditors, Non-Auditors, and Internal Tax Departments in Corporate Tax Aggressiveness

The Accounting Review, Forthcoming

51 Pages Posted: 26 Sep 2012 Last revised: 8 May 2015

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Petro Lisowsky

University of Illinois at Urbana-Champaign - Department of Accountancy; Norwegian Center for Taxation

Devan Mescall

University of Saskatchewan

Date Written: April 2015

Abstract

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 three 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) 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 (3) 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 an important feature of tax compliance intermediaries, particularly how the dual role via audits is related to observable corporate tax outcomes.

Keywords: tax preparer, auditor, tax fee, FIN 48, tax aggressiveness

JEL Classification: H25, M41

Suggested Citation

Klassen, Kenneth J. and Lisowsky, Petro and Mescall, Devan, The Role of Auditors, Non-Auditors, and Internal Tax Departments in Corporate Tax Aggressiveness (April 2015). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2152538 or http://dx.doi.org/10.2139/ssrn.2152538

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Petro Lisowsky (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

Devan Mescall

University of Saskatchewan ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada

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