Did the PCAOB’s Restrictions on Auditors’ Tax Services Improve Audit Quality?

Posted: 7 Mar 2015 Last revised: 3 Dec 2015

See all articles by Clive S. Lennox

Clive S. Lennox

University of Southern California

Date Written: December 2, 2015


In 2005-2006, the PCAOB imposed restrictions on auditors’ tax services in order to strengthen auditor independence and improve audit quality. The restrictions resulted in a significant drop in auditor-provided tax services (APTS). To test the impact on audit quality, I partition the sample into a treatment group (companies whose APTS purchases dropped significantly when the restrictions were introduced) and a control group (companies whose APTS purchases were relatively unaffected) and I measure audit quality using the incidence of accounting misstatements, tax-related misstatements, and auditors’ going-concern opinions. Using a difference-in-differences design, I find no change in audit quality for the treatment group relative to the control group after the restrictions are imposed.

Keywords: accounting misstatements; auditors' tax services; PCAOB

JEL Classification: M40

Suggested Citation

Lennox, Clive, Did the PCAOB’s Restrictions on Auditors’ Tax Services Improve Audit Quality? (December 2, 2015). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2574508 or http://dx.doi.org/10.2139/ssrn.2574508

Clive Lennox (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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