Publication:
Accounting Firms and Tax Aggressiveness

dc.contributor.advisor Carson, Elizabeth en_US
dc.contributor.advisor Lim, Youngdeok en_US
dc.contributor.author Fu, Yi en_US
dc.date.accessioned 2022-03-15T08:40:03Z
dc.date.available 2022-03-15T08:40:03Z
dc.date.issued 2020 en_US
dc.description.abstract This thesis is motivated by reported instances of opportunistic aggressive tax positions taken by large corporations across the globe. The role of professional service providers in delivering various types of tax services, especially the role of accounting firms which provide audit services at the same time to their clients, has received significant public attention. One salient concern is the appropriateness of an audit division reviewing the work conducted by the tax division of the same accounting firm. During the conduct of financial statement audits, the audit engagement team undertakes detailed examinations of the validity and reasonableness of tax-related accounts in financial reports. In situations where the tax division of an audit firm has been engaged to provide tax-related services, this could impact the incentives of the accounting firms in enabling or constraining clients’ tax aggressiveness. This thesis is comprised of three related studies that provide empirical evidence of associations between accounting firms and client firms’ tax aggressiveness. Study One examines whether accounting firm office size affects corporate tax aggressiveness. Study Two explores the association between different auditor characteristics (i.e., group audit arrangements and Big 4 identity) and the tax aggressiveness of multinational enterprises (MNEs). Study Three investigates whether corporate tax aggressiveness is associated with auditors’ propensity to issue first time going-concern opinions. In addition, these three studies also explore whether factors such as whether an audit firm also provides tax services to clients, the existence of audit or tax-specific expertise, and client importance, could moderate associations between auditor characteristics and client firms’ tax aggressiveness. Study One (accounting office size study) uses a large U.S sample covering the period from 2003 to 2017 and finds that clients audited by large audit offices have lower levels of corporate tax aggressiveness. In addition, this negative relationship is less pronounced when an audit office also provides tax services or when the audit office is exposed to more complex tax issues, but it is more pronounced when a client is financially important to the audit office. Using the unique Australian listed firms’ audit fee disclosure, Study Two (group audit study) finds that MNEs are less likely to be tax aggressive when network auditors are involved in audit engagements, compared to when the principal auditor conducts the entire audit engagement, or when unaffiliated auditors are involved in the audit. In addition, Big 4 accounting firms are associated with a lower likelihood of being tax aggressive only when network auditors are involved. These results collectively suggest that the local tax and legal knowledge of network auditors, as well as their cooperation with a principal auditor’s in-house tax division, plays an important role in constraining MNEs’ aggressive tax planning. Study Three (going-concern reporting study) finds that for a large sample of U.S. financially distressed firms over the period 2003 to 2017, firms with more aggressive tax positions are less likely to receive first-time going-concern opinions. Also, this study finds that auditors are more likely to experience both Type I and Type II misclassifications when clients have aggressive tax positions, which is consistent with signalling theory. Taken together, my findings suggest that auditors obtain incremental information from tax-related accounts for going-concern decisions, but they do not succumb to pressure from tax aggressive clients. Overall, the results from this thesis provide coherent evidence supporting the argument that accounting firms have incentives to constrain their clients’ aggressive tax activities and that aggressive tax positions provide incremental information to auditors. en_US
dc.identifier.uri http://hdl.handle.net/1959.4/70655
dc.language English
dc.language.iso EN en_US
dc.publisher UNSW, Sydney en_US
dc.rights CC BY-NC-ND 3.0 en_US
dc.rights.uri https://creativecommons.org/licenses/by-nc-nd/3.0/au/ en_US
dc.subject.other Going Concern en_US
dc.subject.other Audit Firm en_US
dc.subject.other Tax Aggressiveness en_US
dc.subject.other Group Audit en_US
dc.title Accounting Firms and Tax Aggressiveness en_US
dc.type Thesis en_US
dcterms.accessRights open access
dcterms.rightsHolder Fu, Yi
dspace.entity.type Publication en_US
unsw.accessRights.uri https://purl.org/coar/access_right/c_abf2
unsw.date.embargo 2023-02-19 en_US
unsw.description.embargoNote Embargoed until 2023-02-19
unsw.identifier.doi https://doi.org/10.26190/unsworks/2218
unsw.relation.faculty Business
unsw.relation.originalPublicationAffiliation Fu, Yi, Accounting, UNSW en_US
unsw.relation.originalPublicationAffiliation Carson, Elizabeth, Accounting, UNSW Business School, UNSW en_US
unsw.relation.originalPublicationAffiliation Lim, Youngdeok, Accounting, UNSW Business School, UNSW en_US
unsw.relation.school School of Accounting *
unsw.thesis.degreetype PhD Doctorate en_US
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