Beyond Tax Compliance: The Role of Tax Behavior Certification in Auditing

Abstract

We examine whether the role of tax behavior certification goes beyond mere tax compliance, extending to the areas of audit reporting and pricing. We find that auditors charge significantly lower fees to clients possessing high-level tax certification, indicating that such certification carries informational value for them. The certification is particularly beneficial for firms with greater information opacity and weaker oversight, and less so for firms with industry-specialist auditors. Top-tier tax certification also correlates with lower financial reporting and tax compliance risks, more favorable media coverage, and a reduced likelihood of modified audit opinions. Our results suggest that tax behavior certification contributes positively through enhanced information quality and reputation bonding, offering valuable insights into the role of government tax disclosures in the external audit process and its positive unintended consequences on China’s audit market.

Keywords: Audit reporting and pricing, public tax disclosure, tax behavior certification

JEL Classification: H25, M14, M42