Joint Audit Engagements and Client Tax Avoidance: Evidence from the Italian Statutory Audit Regime
Posted: 3 May 2015 Last revised: 13 Apr 2021
Date Written: May 15, 2018
Under the Italian statutory audit regime, three individual accountants are jointly appointed to audit each client’s annual financial statements and sign off on the tax return. These individuals can belong to the same or different accounting firms and through multiple and repeated collaborations they form a professional network. We use network measures of centrality to capture individuals’ ability to acquire and apply tax expertise across clients. We demonstrate that clients engaging better-connected individual auditors have comparatively lower effective tax rates. Our results are robust to controlling for a number of client, individual, and accounting firm characteristics, as well as for alternative network connections between clients. We also use instrumental variables, individual fixed effects, and matching to mitigate the effect of endogenous pairing of clients and auditors. Our findings demonstrate that in a joint audit environment, individual auditor professional networks have consequences for tax outcomes. We extend the literature on joint audit regimes, collaboration between individual auditors from the same and different accounting firms, and determinants and consequences of individual auditors’ characteristics.
Keywords: tax avoidance, social network analysis, auditor networks, auditor tax expertise
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