Auditor-Provided Tax Consulting, Knowledge Spillovers, and Reported Weaknesses in Internal Control

47 Pages Posted: 5 Jun 2007 Last revised: 7 Jun 2013

See all articles by David G. Harris

David G. Harris

Syracuse University - Joseph I. Lubin School of Accounting

Jian Zhou

University of Hawaii at Manoa

Date Written: June 6, 2013

Abstract

We examine whether auditor-provided tax consulting services are associated with tax and non-tax internal control material weaknesses consistent with knowledge spillover benefits. We find a positive association between the amounts of consulting fees paid, which should proxy for the scale and/or scope of the engagements, and tax-related internal control weaknesses. However, we also find that auditor-provided tax consulting is even more strongly associated with a reduced likelihood of non-tax internal control weaknesses. Given these results, we perform several additional tests to evaluate the relative importance of auditor-provided tax consulting to tax versus non-tax internal control weaknesses. Surprisingly, not only is the association between auditor-provided tax services much stronger for non-tax internal control weaknesses, but, in fact, there is no significant benefit to tax internal control weaknesses, whatsoever, after properly accounting for non-tax internal control effects. This finding continues to hold after accounting for the distribution of account- versus company-level ICWs.

Keywords: audit, tax, auditor consulting, auditor independence, internal control weakness

JEL Classification: H23, M41, M49, G34

Suggested Citation

Harris, David G. and Zhou, Jian, Auditor-Provided Tax Consulting, Knowledge Spillovers, and Reported Weaknesses in Internal Control (June 6, 2013). Available at SSRN: https://ssrn.com/abstract=991328 or http://dx.doi.org/10.2139/ssrn.991328

David G. Harris (Contact Author)

Syracuse University - Joseph I. Lubin School of Accounting ( email )

Whitman School of Management
721 University Ave
Syracuse, NY 13244-2130
United States
315-443-3362 (Phone)
315-443-5457 (Fax)

Jian Zhou

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
763
Abstract Views
3,356
rank
42,034
PlumX Metrics