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An International Meeting of American Accounting
Association
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Do Auditor-Provided Tax Services Compromise Auditor Independence With Respect to Tax Expense? |
Cristi A. Gleason
University of Iowa
Lillian F. Mills
University of Texas at Austin
Abstract: Using IRS and auditor fee data from 2000-2002, we investigate whether earnings incorporate contingent tax liabilities differently in the presence of auditor-provided tax services. Constraints imposed by recent regulatory changes have reduced auditor-provided tax services. There is, however, no prior evidence that auditor-provided tax services impair auditor independence. Our results indicate that when corporations do not use auditor-provided tax services, tax expense is positively related to the proposed tax deficiency. In contrast, when corporations use auditor-provided tax services, they do not on average record additional tax expense for the tax deficiency. Further, they do not record additional tax expense for taxes conceded at examination or taxes paid in settlement of the dispute. Thus, it appears that corporations that use their auditors for tax services have already adequately provided for contingent tax liabilities. We conclude that the auditor’s independence is not impaired.