Book-tax conformity and the demand for auditor-provided tax services: European evidence
Journal of Accounting Literature
ISSN: 0737-4607
Article publication date: 21 March 2023
Issue publication date: 20 October 2023
Abstract
Purpose
This study aims to examine the impact of different levels of required book-tax conformity (BTC) on audit clients' demand for auditor-provided tax services (APTS). In addition, the authors also investigate the effects of the European Union (EU) Regulation (2014).
Design/methodology/approach
This study utilizes a sample of listed companies from 10 EU countries between 2010 and 2019. The final sample consists of 16,049 firm-year observations from 2,515 unique firms, and the authors use both probit and ordinary least square (OLS) regression models in this study.
Findings
The main finding of this paper is that companies listed in countries with a higher level of BTC are less likely to purchase tax services from incumbent auditors and pay fewer auditor-provided tax service fees. Results from further analyses confirm that firms substantially reduced their purchase of APTS after the EU Regulation (2014) was implemented, but these reduced purchases were found to be more pronounced for firms located in countries with low BTC.
Originality/value
This study advances the understanding of the determinants of APTS and the consequences of BTC. Specifically, the authors report that variation in a country-specific feature (i.e. BTC) also affects firms' decision to purchase APTS. Moreover, this paper provides some preliminary evidence of the new regulation and contributes to the literature on APTS regulation. The findings of this study have important policy implications for regulators and are also relevant for various capital market participants.
Keywords
Acknowledgements
The authors thank Tom Smith (Editor-in-Chief), Bruce Vanstone (Associate Editor) and an anonymous reviewer, Prem Puwanenthiran (discussant), Junsheng Zhang (discussant), Martin Jacob, the participants of the 2021 Financial Markets and Corporate Governance Conference, the Eighth International Conference of the Journal of International Accounting Research (JIAR), the 4th Research Camp on Auditing and Accounting, the 2021 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Conference and seminar participants at University of Canterbury for the useful comments. The authors are grateful to Linda Myers for the constructive comments and suggestions provided at the 2021 IAS Mid-Year PhD Consortium. Xuan Sean Sun gratefully acknowledges the fund provided by the National Natural Science Foundation of China (No: NSFC-71972011).
Citation
Sun, X.S., Habib, A. and Yao, D.T. (2023), "Book-tax conformity and the demand for auditor-provided tax services: European evidence", Journal of Accounting Literature, Vol. 45 No. 3, pp. 425-457. https://doi.org/10.1108/JAL-11-2022-0120
Publisher
:Emerald Publishing Limited
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