The Influence of the Audit Committee on Auditor Provided Tax Planning Services

Tax certified individual auditors and effective tax rates

“…regression on the residual tax rate changes (De ETR , De CurrETR , De CashETR ) and tax certified auditor changes (StBChange). In line with previously shown results, I would still expect positive signs for StBChange if individual auditors change from a non-tax certified to a tax certified auditor and other aspects of the economic system remain unaffected (Dhaliwal et al 2013;Larcker and Rusticus 2010). The results given in Table 6, Panel B reveal that the coefficient is positive for all regression models and significant for De CurrETR .…”

Tax Haven Networks and the Role of the Big 4 Accountancy Firms

“…Mills (1998) find that effective tax rates are decreasing in tax-related fees paid to attorneys, accountants and consultants; whilst McGuire, Omer and Wang (2012) show that firms purchasing non-audit services from their external audit firm engage in greater tax avoidance when the external audit firm is a tax expert. Furthermore, Dhaliwal et al (2013) find a strong positive association between tax avoidance and tax planning non-audit services. They argue that their results suggest that accounting experts believe that auditor-provided tax planning services are an appropriate means of reducing income taxes.…”

“…Furthermore, the committee report also states that although PwC provides tax advice to clients in line with an internal Code of Conduct, 'PwC's Code does little more than shroud the way PwC exploits flaws in international tax law to devise and offer aggressive tax avoidance schemes to its clients. ' The fact that these issues are so newsworthy at present is very significant, given the fact that there have been significant regulatorydriven changes to improve the governance over non-audit services provided by auditors (Dhaliwal, Gal-Or, Naiker, & Sharma, 2013). Indeed, the Sarbanes-Oxley Act requires that before an auditor is retained to perform tax services, an audit client must seek and obtain approval from the audit committee.…”

Auditor-Provided Tax Services and Accounting for Tax Uncertainty

“…They argue that such tax fees are possibly an indicator of tax planning as an element of companies' tax work, consistent with Cook et al (2008). Elaborating on that, Dhaliwal et al (2013) provide evidence that the relation between APTS and tax avoidance is driven by fees for tax planning rather than tax compliance, although the effect is more pronounced if the auditor provides both. All these findings suggest the presence of knowledge spillover effects from the audit department to the tax department.…”

“…An audit firm that provides both non-audit and audit services to a client generates more revenue from the client, which could result in economic bonding and impair auditor independence. Knowledge spillover to the tax department puts the audit firm in a good position to consult on aggressive tax-avoidance techniques if the firm has tax expertise (Dhaliwal et al, 2013). The client may demand advice on tax avoidance to reduce cash outflows to the tax authorities and therefore increase after-tax cash flow (Hanlon & Heitzman, 2010;Maydew, 1997;Mills, 1998;Phillips, 2003).…”