Audit Fees and Book-Tax Differences

Hanlon, Michelle; Krishnan, Gopal V.; Mills, Lillian F.

doi:10.2139/ssrn.1474529

Cited by 43 publications

(93 citation statements)

References 42 publications

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“…Comparing the mean values with the median values, we find that the dependent variables measured in absolute values ( ABSDA, ABSDESAI ) have “right‐skewed” distributions, whereas dependent variables measured in signed values (BTD) have a “left‐skewed” distribution with a negative mean value (−0.0149). That supports the findings of Ko (2003), Jeon (2004), and Jung et al (2006), and is in contrast to the positive‐mean distribution of the book‐tax difference statistics in US noted frequently by the U.S. Treasury (1999), Mills and Newberry (2001), Manzon and Plesko (2002), Hanlon and Krishnan (2005), and others.…”

Section: Resultssupporting

confidence: 89%

The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from Korea

Choi¹,

Lee²,

Jun

2008

Financ Manag Account

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This study examines the associations between the provision of tax services by incumbent auditors and earnings management. We investigate whether three different effects of tax service provision play different roles in accounting practices. The three effects include the audit independence effect, the knowledge spillover effect, and the tax avoidance effect. If the provision of tax services by incumbent auditors harms auditor independence, firms may exercise greater earnings management (audit independence effect). However, if incumbent auditors gain incremental knowledge by offering tax services, the quality of their audit services could be enhanced, and therefore, reported earnings could be more conservative (knowledge spillover effect). If tax service fee leads to low taxable income, it could depress book income when book-tax conformity is high (tax avoidance effect). We find that the provision of tax services generally improves earnings quality by curtailing opportunistic accounting practices. The results also suggest that the negative association between the provision of tax services and discretionary accruals seems to be primarily driven by the knowledge spillover effect as opposed to the tax avoidance effect. Additional analysis is conducted in examining whether the tax avoidance effect exists in a sub-sample.

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Section: Resultssupporting

confidence: 89%

The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from Korea

Choi¹,

Lee²,

Jun

2008

Financ Manag Account

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“…They showed that large BTDs are associated with more modified audit opinions and a greater incidence of auditor turnover. Hanlon et al () interpret this evidence as being consistent with the BTDs reflecting information about possible earnings management and with auditors examining and using this information in auditing and opining on firms' financial statements. Audit risk formed the central focus of a study by Heltzer and Shelton () in which the author found that auditors, on average, perceive large BTDs to be related to an increase in audit risk.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 64%

“…We employ two measures in our tests total BTDs and abnormal BTDs (ABTDs) as discussed above. We estimate the firm's total BTDs by subtracting the estimated taxable income from the firm's reported pretax book income (e.g., Ayers et al, ; Desai & Dharmapala, ; Dhaliwal, Huber, Lee, & Pincus, ; Frank, Lynch, & Rego, ; Hanlon, ; Hanlon et al, ; Manzon & Plesko, ; Moore, 2012; Tang, ; Wilson, ). Following the methodology in Hanlon (), we estimate taxable income by the rapport between the current tax expense and the tax rate.…”

Section: Methodsmentioning

confidence: 99%

“…In recent years, there has been an increasing amount of literature on the relation between BTDs and audit quality. Hanlon, Krishnan, and Mills () investigated the relationship between BTDs, audit fees and audit opinion. In 1998, Mills published an article in which they described the association between BTDs and audit adjustments.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

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Book‐Tax Differences, Corporate Governance Effectiveness and Audit Quality: An Interactive Effects

Riguen¹,

Kachouri²,

Jarboui³

2018

J Corp Accounting Finance

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In this article, we aim to answer the important questions of whether the corporate governance effectiveness affects the relationship between book‐tax differences (BTDs) and audit quality. We also aim to determine whether the variability between BTDs and audit quality is moderated by corporate governance index (CGI). The primary aim of the present study is to contribute to improving the existence of an interaction between BTDs, audit quality, and CGI. This study uses a sample of 28 nonfinancial listed Tunisian companies and covers an eight‐year period from 2005 to 2015. To test the hypotheses of this research, a generalized least squares (GLS) and ordinary least squares (OLS) regression was applied. The results obtained show that, for the Tunisian companies, a positive association between BTDs and audit quality. The current study also provides evidence that corporate governance moderates the relationship between BTDs and audit quality. The findings may be of interest to the academic researchers, practitioners and regulators who are interested in discovering the quality of corporate governance practices and tax practices in Tunisian context. The findings of this study can help Tunisian regulators in creating corporate governance disclosure requirements. The findings also provide the African business community insights concerning audit quality, tax practices, and corporate governance. This article extends the existing literature, by examining the inter‐relationship between corporate governance, BTDs, and audit quality. © 2019 Wiley Periodicals, Inc.

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“…Ng and Tai (1994) used the number of principal subsidiary companies held by a company to represent complexity and diversification of business operation, and they found that complexity is positively related to audit reporting lag. In this study, it is expected that a higher audit fee is associated with a more complex audit because audit fee is an indicator of the time and effort devoted to the audit, and it should be positively related to a company's level of business complexity (Hanlon et al, 2012). The issuance of a non-standard opinion also increases audit complexity.…”

Section: Audit Characteristics and Audit Reporting Lagmentioning

confidence: 95%

Determinants and implications of audit reporting lags in China

Luo¹

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Audit Fees and Book-Tax Differences

Cited by 43 publications

References 42 publications

The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from Korea

The Provision of Tax Services by Incumbent Auditors and Earnings Management: Evidence from Korea

Book‐Tax Differences, Corporate Governance Effectiveness and Audit Quality: An Interactive Effects

Determinants and implications of audit reporting lags in China

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