Title
Audit quality and tax-induced earnings management in UK private firms
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerp :UA, [*]
Subject
Economics
Source (series)
Research paper / UA, Faculty of Applied Economics , 2007:4
Volume/pages
29 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
This paper examines audit quality and tax-induced earnings management in UK private (i.e. non-listed) firms. Tax incentives are considered to play a large role in private firms earnings management behavior. While Big 4 auditors are generally considered to provide a higher audit quality compared to non-Big 4 auditors, we expect that Big 4 auditors in a weak tax alignment country have weak incentives to constrain tax-induced earnings management. Moreover, Big 4 auditors arguably possess a higher expertise in providing tax advice, which is allowed under the EC recommendation on auditor independence. We provide evidence that UK firms engage more in income-decreasing earnings management and have lower relative tax burdens when they have a Big 4 auditor. These results imply that Big 4 auditors seem to help their clients in engaging in tax-induced earnings management.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/9e4fd8/e129d1a8.pdf
Handle