Voluntary vs. mandatory: the role of auditing in constraining corporate tax avoidance in small private firms

Ting Dong, Milda Tylaite and Ryan Wilson

Accounting and Business Research, 2023, vol. 53, issue 7, 723-755

Abstract: This paper examines whether the status of the financial statement audit, as either voluntary or mandatory, is related to the corporate tax avoidance behaviour of private firms. Using the Swedish audit regime shift in 2010 which removed mandatory audit requirements for small private companies, we find that voluntarily audited firms exhibit a 19% decrease in total income tax burden relative to firms subject to mandatory audit following the regulatory change. This decrease corresponds to an average SEK 15,000 (approximately 1,500 euros) lower tax payment and is driven primarily by increasing conforming tax avoidance. We also find that increasing tax avoidance in voluntarily audited firms occurs, at least partly, due to impaired auditor independence under the voluntary audit regime. Finally, we show that the non-tax costs of tax avoidance restrict these tax-driven reporting changes. Our findings contribute to the literature on auditors’ constraining effect on corporate tax avoidance as well as to the debate over the costs and benefits of a mandatory financial statement audit regime.

Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00014788.2022.2063105 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:acctbr:v:53:y:2023:i:7:p:723-755

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RABR20

DOI: 10.1080/00014788.2022.2063105

Access Statistics for this article

Accounting and Business Research is currently edited by Vivien Beattie

More articles in Accounting and Business Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().