Do Auditor-Provided Tax Services Improve the Estimate of Tax Reserves?

• 成果类型: Article
• 署名作者: Gleason, Cristi A.; Mills, Lillian F.
• 署名单位: University of Iowa; University of Texas System; University of Texas Austin
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2010.01057.x
• 发表日期: 2011
• 页码: 1484-+
• 关键词: NONAUDIT SERVICES; earnings management; MULTINATIONAL-CORPORATIONS; valuation allowance; INDEPENDENCE; fees; incentives; INVESTMENT

摘要

We examine whether auditor-provided tax services (ATS) improve the quality of financial reporting via knowledge spillover. Concerns about auditor independence prompted regulators to restrict auditor-provided nonaudit services. Despite the general failure of researchers to document a decrease in financial reporting quality associated with nonaudit services, ATS declined after the Sarbanes-Oxley Act, even though many such services are still permissible with audit committee approval. We investigate tax reserves recorded for tax disputes, a setting where ATS could either improve the audit through knowledge spillover or impair independence. We use Internal Revenue Service (IRS), financial statement, and auditor fee data to test whether ATS are associated with changes in tax reserves from 2000 to 2002. Based on prior findings that ATS appear to reduce restatements, we predict ATS improve the estimate of tax reserves. We find corporations that purchase ATS are on average fully reserved for IRS disputes. In contrast, other corporations must record additional reserves in the year the IRS finishes its examination. We conclude that using ATS improved corporations' estimates of tax reserves prior to Sarbanes-Oxley as predicted, contrary to concerns about independence failure but consistent with the existence of knowledge spillover.