@article{e03073d666a54e8f9ffdd0afb65ba857,
title = "Tax Non-Audit Services and Client Income Tax Estimation Error",
abstract = "SUMMARY: The provision of non-audit services (NAS) to audit clients can generate knowledge spillovers that enhance auditors{\textquoteright} judgments or self-review and self-interest threats that impair auditors{\textquoteright} independence. Prior research finds mixed evidence of a relation between tax NAS and clients{\textquoteright} (actual and potential) material GAAP violations in accounting for income taxes. As auditors are likely to avoid material GAAP violations, we re-examine this issue using a measure that reflects immaterial or within-GAAP estimation error in clients{\textquoteright} income tax expense. We find that greater amounts of tax NAS are associated with greater income tax estimation error, consistent with tax NAS threating auditors{\textquoteright} independence. The association is partially offset by auditor expertise and concentrated in engagements where auditors face both self-review and self-interest threats. Our findings inform the ongoing policy debate regarding whether accounting firms should provide tax NAS to their audit clients.",
keywords = "audit quality, auditor-provided tax services, income tax estimation error, tax non-audit services",
author = "Preeti Choudhary and Allison Koester and Robert Pawlewicz",
note = "Funding Information: This paper has benefited from insightful comments by Ann Vanstraelen (editor), two anonymous reviewers, John Abernathy (discussant), Bill Baber, Diana D{\textquoteright}Amico Pawlewicz, Michael Donohoe, Patricia Fairfield, Marshall Geiger, Russ Hamilton (discussant), Michelle Harding, Keith Jones, Robert Knechel (discussant), Ling Lisic, Miguel Minutti-Meza, Karen Nelson (discussant), Lee Pinkowitz, Abbie Sadler, Katherine Schipper, Jason Schloetzer, Terry Shevlin, Sarah Stein, Bridget Stomberg (discussant), Ann Vanstraelen, PCAOB staff members, workshop participants at George Mason University; Georgetown University; Oklahoma State University; Rutgers, The State University of New Jersey; University of Connecticut; University of Houston; The University of Oklahoma; University of Richmond; University of San Diego; Virginia Polytechnic and State University; and conference participants at the 2015 AAA Annual Meeting, 2014 AAA Auditing Midyear Meeting, 2014 AAA FARS Midyear Meeting, 2014 PCAOB/JAR Conference on Auditing and Capital Markets, and the 2013 University of Illinois Tax Symposium. The authors acknowledge financial support from their respective universities. This paper was previously titled {\textquoteleft}{\textquoteleft}The Impact of Auditor-Provided Tax Services on Tax Accrual Quality{\textquoteright}{\textquoteright} and {\textquoteleft}{\textquoteleft}Auditor Provided Tax Services and Income Tax Estimation Error.{\textquoteright}{\textquoteright} This research did not receive any specific grants from funding agencies in the public, commercial, or not-for-profit sectors. Publisher Copyright: {\textcopyright} 2022, American Accounting Association. All rights reserved.",
year = "2022",
month = may,
doi = "10.2308/AJPT-2020-071",
language = "English (US)",
volume = "41",
pages = "113--139",
journal = "Auditing",
issn = "0278-0380",
publisher = "American Accounting Association",
number = "2",
}