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Determinants of Audit/Tax Separation Decisions


  • Brad Cripe
  • Brian McAllister


This study examines companies that separated or integrated the tax and audit functions subsequent to the passage of the Sarbanes-Oxley Act (SARBOX). While the provision of tax services is not currently prohibited by SARBOX, some companies have separated these two functions. An examination of the relationship between tax function separation (integration) and proxies for audit quality, tax advocacy and audit fee is performed for a matched sample of companies that made the decision to separate or integrate during the period following the passage of SARBOX. In addition, we survey CFOs of both types of companies to determine the motivations behind the separation/integration decision. Our results indicate separation firm CFOs perceive benefits associated with auditor independence as their main reason for separating, while integration firm CFOs perceive cost savings and knowledge spillover as benefits of integration. The matched-pair analysis suggests that both cost-savings and tax-savings are present in the year the tax and audit function is integrated, a benefit not enjoyed by their separation firm peers.

Suggested Citation

  • Brad Cripe & Brian McAllister, 2009. "Determinants of Audit/Tax Separation Decisions," American Journal of Business, Emerald Group Publishing, vol. 24(1), pages 47-56, April.
  • Handle: RePEc:eme:ajbpps:v:24:y:2009:i:1:p:47-56

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    Cited by:

    1. Mikko Zerni, 2012. "Do client firms manage the perception of auditor independence?: Evidence from the Swedish non-audit service market," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(9), pages 821-845, October.
    2. Gopal V. Krishnan & Wei Yu, 2011. "Further evidence on knowledge spillover and the joint determination of audit and non-audit fees," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(3), pages 230-247, March.


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