In this paper, we examine religiosity as one determinant of tax avoidance by corporate and individual taxpayers. Prior research suggests a relation between religiosity and risk aversion. Because aggressive tax avoidance strategies involve significant uncertainty and possible penalties and damage to reputation, we predict that higher levels of religiosity are associated with less aggressive (i.e., less risky) tax positions. Consistent with this prediction, we find that firms headquartered in more religious U.S. counties are less likely to avoid taxes. We also find that religiosity is consistently associated with lower tax avoidance by individual taxpayers, as measured by underreported income. These results hold after controlling for several firm-level, as well as county-level, demographic characteristics identified in prior research as affecting tax avoidance by corporate and/or individual taxpayers. We conclude that religiosity is a significant determinant of tax avoidance by corporate and individual taxpayers.

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SYNOPSIS As mandated by Sarbanes-Oxley, the SEC reviews the financial reports of public companies and challenges the appropriateness of accounting that seems questionable or unclear. We investigate whether the likelihood of an SEC comment (challenge), and the time needed to resolve such comments, depends upon either of two characteristics of the underlying accounting standard—rules and accounting estimates. We find that the probability of an SEC comment increases with the rules-based characteristics in the standard, but find little evidence that time to resolution is related to such characteristics. We also find that the extent of estimates required to implement the standard is positively associated with both the probability of an SEC comment and the time to resolve the comment. Our findings should help inform the debate over the appropriate level of rules and estimates in GAAP, and are especially timely in light of the potential convergence between more rules-based U.S. GAAP and more principles-based IFRS GAAP. Data Availability: Data are available from public sources.

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SUMMARY In this paper, we examine the relation between auditor litigation risk and abnormal accruals over the 1989–2007 time period. We address potential endogeneity in prior studies by jointly modeling abnormal accruals and litigation risk in a simultaneous equation system. Our findings suggest that client-specific litigation risk affects auditor incentives to acquiesce to client demands for earnings management, i.e., the higher the risk of auditor litigation, the greater the auditor's restraining influence on the abnormal accruals reported by the client. We also find evidence that abnormal accruals increase the likelihood of auditor litigation. We also document that the 1995 Public Securities Litigation Reform Act (PSLRA) lowered the client-specific risk of auditor litigation. Litigation reform remains a topic of ongoing interest. Our findings contribute to a better understanding of the effects of litigation reform (and related changes in legal exposure) on auditor incentives and earnings management.

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