Do Tax Experts Play a Monitoring Role in Audit Engagements?

60 Pages Posted: 1 Oct 2021 Last revised: 12 Nov 2021

See all articles by Saad Siddiqui

Saad Siddiqui

Villanova University

Ally Zimmerman

Florida State University - Department of Accounting

Miguel Minutti-Meza

University of Miami - Department of Accounting

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance

Date Written: November 11, 2021

Abstract

Using proprietary data, this study is among the first to provide evidence on the monitoring role of auditors’ in-house tax experts. This role is important due to the relatively high frequency and proportion of tax expert hours in audits, and the salience of tax-related accruals in financial reporting. We show that tax expert effort is associated with client complexity and auditor characteristics. Next, we demonstrate that tax expert effort is associated with the incidence of tax-related internal control weaknesses, but it is not enough to fully mitigate the risk of material misstatements. We also find that tax expert effort is costly, resulting in higher audit fees and lower realization rates. Finally, tax expert effort is associated with conservative tax accruals but not with aggressive tax planning. Overall, although tax expert effort is associated with audit quality and financial reporting quality, it is not a seamless solution to audit tax-related accruals.

Keywords: tax experts, audit of tax accounts, auditors’ use of specialists, audit quality, PCAOB

JEL Classification: M42

Suggested Citation

Siddiqui, Saad and Zimmerman, Aleksandra and Minutti-Meza, Miguel and Bauer, Andrew M., Do Tax Experts Play a Monitoring Role in Audit Engagements? (November 11, 2021). Available at SSRN: https://ssrn.com/abstract=3933773 or http://dx.doi.org/10.2139/ssrn.3933773

Saad Siddiqui

Villanova University ( email )

Villanova, PA 19085
United States

Aleksandra Zimmerman (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States

Miguel Minutti-Meza

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6287 (Phone)

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance ( email )

200 University Ave W
Waterloo, Ontario N2L 3G1
Canada

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