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

Listed author(s):
  • Nan-Ting Kuo

    ()

    (Nankai University)

  • Cheng-Few Lee

    ()

    (Rutgers University)

Registered author(s):

    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.

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    File URL: http://link.springer.com/10.1007/s11142-016-9367-x
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    Article provided by Springer in its journal Review of Accounting Studies.

    Volume (Year): 21 (2016)
    Issue (Month): 4 (December)
    Pages: 1287-1326

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    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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    Order Information: Web: http://www.springer.com/accounting/journal/11142

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