Does tax enforcement inform auditors' risk assessment? Evidence from key audit matters

• 成果类型: Article
• 署名作者: Filosa, Jessica R.; Huang, Jingjing (Jing); Lei, Lijun (Gillian); Stein, Sarah E.
• 署名单位: University of Alabama System; University of Alabama Tuscaloosa; Virginia Polytechnic Institute & State University; University of North Carolina; University of North Carolina Greensboro
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150; 1911-3846
• DOI: 10.1111/1911-3846.13042
• 发表日期: 2025-06
• 页码: 1423-1454
• 关键词: Key audit matters; monitoring; RISK ASSESSMENT; Tax enforcement; INTERNAL CONTROL; determinants; avoidance; QUALITY; fees; CONSEQUENCES; Oversight; earnings

摘要

International standards encourage auditors to consider regulatory factors and external parties during the risk assessment process. One such external party is the taxation authority, which monitors corporate conduct and uses the threat of tax audits to constrain managerial opportunism. This study examines whether tax enforcement influences auditors' perception of the risk of material misstatement on their engagements. Using a sample of companies listed on European exchanges, we assess the strength of tax enforcement at the country level based on the number of full-time equivalent (FTE) employees in the tax audit and verification function relative to the size of the economy. Since auditors of these European listed companies must publicly disclose key audit matters (KAMs), we use the number of KAMs to capture auditors' perceptions of client-level misstatement risk. Our results indicate that auditors report fewer KAMs in the presence of more FTEs in the tax audit and verification function. In cross-sectional tests, we find that this negative association is stronger in settings where auditors are more inclined to incorporate the monitoring potential of the tax authority into their risk assessment, such as in countries with high book-tax conformity and for auditors with greater exposure to complex tax issues. These findings offer new insights into the role of tax enforcement in auditors' decision-making and have timely implications for accounting regulators and academics studying the determinants of KAMs.