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A potential benefit of increasing book–tax conformity: evidence from the reduction in audit fees


  • Nan-Ting Kuo

    () (Nankai University)

  • Cheng-Few Lee

    () (Rutgers University)


Abstract Our study explores a possible benefit of conforming book income to taxable income. We expect that increased book–tax conformity can reduce audit fees by simplifying tax accruals and increasing tax authorities’ monitoring, which reduce audit workload and audit risk, respectively. Consistent with our expectations, we find that a higher country level of required book–tax conformity leads to lower audit fees. Moreover, firm-level book–tax differences are positively associated with audit fees. We also find that the negative association between country level of required book–tax conformity and audit fees is mitigated among firms with larger book–tax differences. Our findings are robust to including country-level legal investor protection or other extra-legal institutions. Overall, our results suggest that one benefit of increasing book–tax conformity is the reduction in audit fees.

Suggested Citation

  • Nan-Ting Kuo & Cheng-Few Lee, 2016. "A potential benefit of increasing book–tax conformity: evidence from the reduction in audit fees," Review of Accounting Studies, Springer, vol. 21(4), pages 1287-1326, December.
  • Handle: RePEc:spr:reaccs:v:21:y:2016:i:4:d:10.1007_s11142-016-9367-x
    DOI: 10.1007/s11142-016-9367-x

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    References listed on IDEAS

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    More about this item


    Audit fee; Book–tax conformity; Book–tax difference; Legal institution; Extra-legal institution;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting


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