Do signatory auditors with tax expertise facilitate or curb tax aggressiveness?

Mark DeFond, Baolei Qi, Yi Si and Jieying Zhang

Journal of Accounting and Economics, 2025, vol. 79, issue 1

Abstract: Prior research concludes that tax-expert auditors facilitate tax aggressiveness. However, these studies examine auditors who also provide non-audit tax services to their clients, creating conflicting incentives. We predict that tax-expert auditors, who do not provide non-audit tax services, reduce tax aggressiveness, because tax aggressiveness imposes costs on them. We test our prediction using Chinese data, allowing us to identify Certified Tax Agents as tax-expert auditors. We find that companies are less tax aggressive when their signatory auditor is a tax-expert who does not provide non-audit tax services. Consistent with a causal relation, a decrease in tax rates, which reduces clients’ incentives to be tax aggressive, weakens the effect of tax-expertise on tax aggressiveness. Moreover, tax-expert auditors attenuate the type of tax aggressiveness that results in tax-related misstatements. Overall, by examining auditors who do not provide non-audit tax services, we find that tax-expert auditors curb tax aggressiveness, contrary to prior research.

Keywords: Signatory auditor; Tax expertise; Tax aggressiveness; Tax-related restatements (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:79:y:2025:i:1:s0165410124000454

DOI: 10.1016/j.jacceco.2024.101715

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