The Role of In-House Tax Experts on Audit Engagements

50 Pages Posted: 1 Oct 2021 Last revised: 14 Nov 2023

See all articles by Andrew M. Bauer

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance

Miguel Minutti-Meza

University of Miami - Department of Accounting

Saad Siddiqui

University of Texas at Austin

Ally Zimmerman

Florida State University - Department of Accounting

Date Written: September 6, 2023

Abstract

Using proprietary data, this study is among the first to provide evidence on the monitoring role of auditors’ in-house tax experts. This role is important due to the relatively high frequency and proportion of tax expert hours in audits, and the salience of tax-related accruals in financial reporting. We show that tax expert effort is associated with client complexity and auditor characteristics. Next, we demonstrate that tax expert effort is associated with the incidence of tax-related internal control weaknesses, but it is not enough to fully mitigate the risk of material misstatements. We also find that tax expert effort is costly, resulting in higher audit fees and lower realization rates. Finally, tax expert effort is associated with conservative tax accruals but not with aggressive tax planning. Overall, although tax expert effort is associated with audit quality and financial reporting quality, it is not a seamless solution to audit tax-related accruals.

Keywords: tax experts, audit of tax accounts, auditors’ use of specialists, audit quality, PCAOB

JEL Classification: M42

Suggested Citation

Bauer, Andrew M. and Minutti-Meza, Miguel and Siddiqui, Saad and Zimmerman, Aleksandra, The Role of In-House Tax Experts on Audit Engagements (September 6, 2023). Available at SSRN: https://ssrn.com/abstract=3933773 or http://dx.doi.org/10.2139/ssrn.3933773

Andrew M. Bauer

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

200 University Ave W
Waterloo, Ontario N2L 3G1
Canada

Miguel Minutti-Meza

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

Saad Siddiqui

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Aleksandra Zimmerman (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

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