The Changing Role of Auditors in Corporate Tax Planning
AbstractThis paper examines changes in the role that auditors play in corporate tax planning following recent events, including the well-known accounting scandals, passage of the Sarbanes-Oxley Act, and regulatory actions by the SEC and PCAOB. On the whole, these events have increased the sensitivity to and scrutiny of auditor independence. We examine the effects of these events on the market for tax planning, in particular the longstanding link between audit and tax services. While the effects are recent, they are already being seen in the data. Specifically, there has already been a dramatic shift in the market for tax planning away from obtaining tax planning services from one's auditor. We estimate that the ratio of tax fees to audit fees paid to the auditors of firms in the S&P 500 decline from approximately one in 2001 to one-fourth in 2004. At the same time, we find no evidence of a general decline in spending for tax services. In sum, the evidence indicates a decoupling of the longstanding link between audit and tax services, such that firms are shifting their purchase of tax services away from their auditor and towards other providers.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11504.
Date of creation: Aug 2005
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Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L5 - Industrial Organization - - Regulation and Industrial Policy
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-08-13 (Accounting & Auditing)
- NEP-ALL-2005-08-13 (All new papers)
- NEP-PBE-2005-08-13 (Public Economics)
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