Tax Aggressiveness and Auditor Resignation

65 Pages Posted: 11 Jun 2013

See all articles by Beng Wee Goh

Beng Wee Goh

Singapore Management University - School of Accountancy

Chee Yeow Lim

Singapore Management University - School of Accountancy

Terry J. Shevlin

University of California-Irvine

Yoonseok Zang

Singapore Management University - School of Accountancy

Date Written: May 1, 2013

Abstract

We examine the relation between client tax aggressiveness and auditor’s resignation decision. Consistent with the agency view of tax avoidance which suggests that client tax aggressiveness can increase litigation and reputational risk to auditors and increase the potential conflict with managers, we find a positive association between our proxies for tax aggressiveness and the likelihood that an auditor resigns from an audit engagement. Further, this association is stronger when external monitoring of the client firm is less effective, when there is greater potential for agency problems in the client firm, and when the economic importance of the fees received from the client firm is lower. Overall, our study identifies client tax risk as an important determinant of auditors’ resignation. This result should be of interest to auditors who actively manage client audit risks and to tax authorities who have incentives to identify firms with abusive tax reporting behavior.

Keywords: tax aggressiveness, auditor resignation, agency cost, external monitoring, auditor independence

JEL Classification: G32, H26, M41

Suggested Citation

Goh, Beng Wee and Lim, Chee Yeow and Shevlin, Terry J. and Zang, Yoonseok, Tax Aggressiveness and Auditor Resignation (May 1, 2013). Available at SSRN: https://ssrn.com/abstract=2277336 or http://dx.doi.org/10.2139/ssrn.2277336

Beng Wee Goh

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Chee Yeow Lim

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Terry J. Shevlin (Contact Author)

University of California-Irvine ( email )

Irvine, CA California 92697-3125
United States
2065509891 (Phone)

Yoonseok Zang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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