Publication Type
Working Paper
Publication Date
4-2013
Abstract
We examine the relation between client tax aggressiveness and auditor‟s resignation decision. Consistent with the agency view of tax avoidance which suggests that client tax aggressiveness can increase litigation and reputational risk to auditors and increase the potential conflict with managers, we find a positive association between our proxies for tax aggressiveness and the likelihood that an auditor resigns from an audit engagement. Further, this association is stronger when external monitoring of the client firm is less effective, when there is greater potential for agency problems in the client firm, and when the economic importance of the fees received from the client firm is lower. Overall, our study identifies client tax risk as an important determinant of auditors‟ resignation. This result should be of interest to auditors who actively manage client audit risks and to tax authorities who have incentives to identify firms with abusive tax reporting behavior.
Keywords
Tax aggressiveness, auditor resignation, agency cost, external monitoring, auditor independence
Discipline
Accounting
Research Areas
Corporate Reporting and Disclosure
Citation
ZANG, Yoonseok; GOH, Beng Wee; LIM, Chee Yeow; and Shevlin, Terry.
Tax Aggressiveness and Auditor Resignation. (2013).
Available at: https://ink.library.smu.edu.sg/soa_research/1125
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.