Rethinking audit governance: the integrated role of independence, tax oversight, and auditor tenure in preventing fraud within companies

Isabella Lucut Capras, Monica Violeta Achim, Giuseppe Nicolò and Paolo Tartaglia Polcini

Review of Accounting and Finance, 2026, vol. 25, issue 3, 456-476

Abstract: PurposeThe purpose of this study is to investigate the relationship between audit quality and financial statement fraud through a comprehensive lens.Design/methodology/approachAn Estimated Generalized Least Squares regression model was used to examine the relationship between audit quality indicators, such as audit committee independence, the oversight of tax planning by the audit committee and long auditor tenure and financial statement fraud, as measured by Beneish’s (1999) model. This study analyzed a sample of 904 companies from the European Union (EU) spanning 2019–2023.FindingsThe results of this study indicate that greater independence of the audit committee, active tax-planning oversight and shorter auditor tenures are linked to a lower risk of financial statement fraud. Conversely, during systemic shocks like the COVID-19 pandemic, firms tend to be more prone to earnings manipulation.Research limitations/implicationsThis study indicates that financial fraud controls should include governance factors based on agency theory.Practical implicationsBoards and policymakers are encouraged to tighten independence criteria, mandate explicit tax-planning reviews and limit auditor tenure to reduce familiarity risks.Social implicationsRegulators can use the crisis-effect insights to focus monitoring during economic stress when fraud risks increase, thus protecting investors and society.Originality/valueThis study conducts a multi-country analysis within the EU to explore the relationship between audit-committee independence, tax planning oversight, auditor tenure and fraud risk, taking into account the impact of the COVID-19 pandemic. This study uses a large panel data set compared to previous research and highlights the importance of targeted, current audit practices to prevent and detect financial statement fraud.

Keywords: Audit; Fraud; Tax policy; Agency theory; Audit quality; Tax (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-09-2025-0346

DOI: 10.1108/RAF-09-2025-0346

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