A potential benefit of increasing book–tax conformity: evidence from the reduction in audit fees

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• 作者：Nan-Ting Kuo ; Cheng-Few Lee
• 关键词：Audit fee ; Book–tax conformity ; Book–tax difference ; Legal institution ; Extra ; legal institution
• 刊名：Review of Accounting Studies
• 出版年：2016
• 出版时间：December 2016
• 年：2016
• 卷：21
• 期：4
• 页码：1287-1326
• 全文大小：606 KB
• 刊物主题：Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics;
• 出版者：Springer US
• ISSN：1573-7136
• 卷排序：21

文摘

Our study explores a possible benefit of conforming book income to taxable income. We expect that increased book–tax conformity can reduce audit fees by simplifying tax accruals and increasing tax authorities’ monitoring, which reduce audit workload and audit risk, respectively. Consistent with our expectations, we find that a higher country level of required book–tax conformity leads to lower audit fees. Moreover, firm-level book–tax differences are positively associated with audit fees. We also find that the negative association between country level of required book–tax conformity and audit fees is mitigated among firms with larger book–tax differences. Our findings are robust to including country-level legal investor protection or other extra-legal institutions. Overall, our results suggest that one benefit of increasing book–tax conformity is the reduction in audit fees.