Interprofessional Collaboration and Conflict between Auditors and Tax Specialists During Audit Engagements

Accounting firm office size and tax aggressiveness

“…During financial statement audits, the auditing of tax‐related accounts is challenging for auditors due to their complexity and the requirement of relevant tax knowledge (De Simone et al, 2015; Gleason & Mills, 2011). Thus, tax experts often assist audit teams in assessing the reasonableness of complex tax provisions (Bauer et al, 2021; Goldman et al, 2022; Hux et al, 2022, 2023). However, Hux et al (2022) report that factors such as trust, firm culture, and regulatory pressure can hinder the collaboration between the audit team and tax team, thereby impairing audit quality.…”

“…Thus, tax experts often assist audit teams in assessing the reasonableness of complex tax provisions (Bauer et al, 2021; Goldman et al, 2022; Hux et al, 2022, 2023). However, Hux et al (2022) report that factors such as trust, firm culture, and regulatory pressure can hinder the collaboration between the audit team and tax team, thereby impairing audit quality. Furthermore, tax‐related accounts are the last accounts finalised before the release of earnings announcements.…”

“…Furthermore, large offices develop greater industry and tax‐specific expertise to constrain earnings management through tax‐related accounts (Christensen et al, 2015; Goldman et al, 2022; Hux et al, 2022). Their audit teams accumulate greater industry experience and obtain audit‐specific expertise by engaging in more industry‐specific audits, while tax teams acquire tax‐specific expertise through their exposure to a broader range of tax issues and more complex transactions (Choi et al, 2010; Francis et al, 2013; Francis & Yu, 2009; Goldman et al, 2022).…”

“…Their audit teams accumulate greater industry experience and obtain audit‐specific expertise by engaging in more industry‐specific audits, while tax teams acquire tax‐specific expertise through their exposure to a broader range of tax issues and more complex transactions (Choi et al, 2010; Francis et al, 2013; Francis & Yu, 2009; Goldman et al, 2022). When auditing tax‐related accounts, the engagement audit team usually collaborates with tax experts in the same office because auditing complex tax issues requires insight beyond industry‐specific knowledge (Bauer et al, 2021; Bonner et al, 1992; Goldman et al, 2022; Hux et al, 2022). Tax teams develop tax expertise covering various issues, such as those relating to multinational transfer pricing and R&D tax credits (Goldman et al, 2022).…”

“…In the process of auditing income tax accounts, especially those with complex tax positions, accounting offices usually require tax experts to collaborate with audit teams (Bauer et al, 2021; Goldman et al, 2022; Hux et al, 2022, 2023). The audit team usually allocates the work related to complex tax accounts (e.g., transfer pricing and tax credits) to these tax experts and requires them to prepare the work papers.…”