Veranstaltungsprogramm der VHB Jahrestagung

The International Financial Reporting Interpretation Committee (IFRIC) 23 stipulates firms to recognize and measure uncertain tax treatments to increase transparency and comparability in reporting firms’ tax position. Under this interpretation, firms must assume that tax authorities have full knowledge of the tax information reported in the financial statements. Audit probability assumption and explicit guidelines are expected to limit firm’s discretion in avoiding their taxes. Using difference in difference design, I examine the effect of IFRIC 23 on corporate tax avoidance and whether the effect varies to avoider and non-avoider firms across 51 countries. Overall, I find that, compared to non-IFRS firms, IFRS firms experienced a reduction in cash-based tax avoidance after the IFRIC 23 implementation. I also document that the effect differs among avoiders and non-avoiders. Compared to non-avoiders, avoider firms become less aggressive in the post IFRIC 23 adoption.

Recent global audit failures combined with audit firms’ renewed focus on growing their consulting practices has increased regulatory attention on the impact of non-audit services on audit quality. In this study, we examine the behavior of audit firms during the period prior to and immediately after their client purchases non-audit services. Specifically, we examine the auditor’s influence on tax reserve accounting for a given client as they shift from not purchasing tax services to procuring tax services for the first time from their auditor. We find that companies report increases in tax reserves in the year before they begin purchasing auditor provided tax services (APTS). We also find that the tax reserve effects reverse after the client begins purchasing APTS, which is consistent with the notion that the initial effects were due to auditor influence. Consistent with incentives to sell APTS and inconsistent with a knowledge spillover effect, this decrease in tax reserves after purchasing APTS is due to discretionary tax reserves and related to tax reserves of prior year tax positions when the client did not use their auditor for tax services. Furthermore, we find that this behavior reduces the accuracy of tax reserves implying a reduction in the quality of income tax information. Overall, the results are consistent with auditors influencing firms’ accounting for uncertain tax positions to sell their own tax advisory services, which impairs auditor independence and accounting quality.