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Why Higher Levels Of Auditor-Provided Tax Services Lower The Likelihood Of Restatements

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  • Kevin A. Diehl

Abstract

Kinney et al. (2004) ask in the Journal of Accounting Research: Why do higher levels of auditor-provided tax services lower the chances of restatements? In resolving this question, this paper investigates the relationship between auditor-provided tax services and restatements with proxies to represent the motivations of the audit committee and chief financial officers. Because Sarbanes-Oxley requires audit committee preapproval for these tax services, the necessity for including these variables is obvious. Logistic regression of seven specifications show that higher levels of auditor-provided tax services, financial experts, and long-term compensation are inversely and statistically significantly related to all restatements and (more strongly) to tax-influential restatements. The cash effective tax rate directly and statistically significantly relates to those specifications, showing that just increasing spending on these tax services cannot signal high-quality financial reporting in the absence of effective utilization.

Suggested Citation

  • Kevin A. Diehl, 2012. "Why Higher Levels Of Auditor-Provided Tax Services Lower The Likelihood Of Restatements," Accounting & Taxation, The Institute for Business and Finance Research, vol. 4(2), pages 13-30.
    • Handle: RePEc:ibf:acttax:v:4:y:2012:i:2:p:13-30
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    References listed on IDEAS

    as
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    4. David F. Larcker & Scott A. Richardson, 2004. "Fees Paid to Audit Firms, Accrual Choices, and Corporate Governance," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 625-658, June.
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    7. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    8. William R. Kinney & Zoe‐Vonna Palmrose & Susan Scholz, 2004. "Auditor Independence, Non‐Audit Services, and Restatements: Was the U.S. Government Right?," Journal of Accounting Research, Wiley Blackwell, vol. 42(3), pages 561-588, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    restatements; audit committees; tax;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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