Does Task-Specific Knowledge Improve Audit Quality: Evidence from Audits of Income Tax Accounts
52 Pages Posted: 9 Oct 2017 Last revised: 8 Feb 2019
Date Written: February 1, 2019
Two forms of expertise can influence audit quality: industry and task-specific expertise. Anecdotal evidence suggests that tax knowledge is task-specific, rather than industry-specific and audit offices with increased exposure to complex tax issues develop this task-specific expertise. Using outcomes related to audits of the income tax accounts, we examine whether tax task-specific knowledge (TSK) affects the audit quality of the income tax accounts and find that tax TSK increases the audit quality of the income tax accounts. We also find evidence of an improved response to misstatements among audit offices with tax TSK, demonstrated by a decreased likelihood of future tax misstatements following the disclosure of a tax restatement. Finally, we observe the effect of tax TSK among audit offices with lower levels of auditor-provided tax services (APTS). This result suggests that audit offices without the benefit of knowledge spillover from APTS rely more on the tax TSK.
Keywords: Income Tax Audit Quality, Tax Restatements, Task Expertise, Income Tax Complexity, Task-specific Expertise
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