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Does Client Importance Matter to Book-Tax Differences?

Author

Listed:
  • Yi-Hsing Liao
  • Pih-Shuw Chen
  • Teng-Sheng Sang
  • Chia-Hsuan Tseng

Abstract

This paper examines whether audit client importance affects book-tax differences, a measure that can potentially reflect discretion in audit client’s action in financial and tax reporting choices. We use Taiwan data as client importance can be measured not only at the firm level but the individual partner level as well as the audit team level. The multiple regression analyses show that client importance is positively correlated with the magnitude of book-tax difference under each of our client importance measures, suggesting that auditors compromise reporting quality by allowing economically important clients to choose relatively more opportunistically reporting practices. As a result, book-tax differences are larger for these clients. JEL classification numbers: M41, M42 Keywords: Audit client importance, Audit quality, Financial reporting quality, Book-tax differences.

Suggested Citation

  • Yi-Hsing Liao & Pih-Shuw Chen & Teng-Sheng Sang & Chia-Hsuan Tseng, 2020. "Does Client Importance Matter to Book-Tax Differences?," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-17.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:5:f:10_5_17
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    References listed on IDEAS

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    More about this item

    Keywords

    audit client importance; audit quality; financial reporting quality; book-tax differences.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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