Tax avoidance and audit report lag in South Africa: the moderating effect of auditor type

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hela Gontara ◽  
Hichem Khlif
Keyword(s):  
Tax Avoidance ◽  
Fiscal Year ◽  
Audit Report ◽  
Effective Tax Rate ◽  
Audit Risk ◽  
Content Type ◽  
Tax Rate ◽  
Big 4 ◽  
High Degree ◽  
The Impact

Purpose The purpose of this paper is to examine the association between audit report lag (ARL) and tax avoidance and test whether external auditor type affects this relationship. Design/methodology/approach ARL is measured as the number of days from fiscal year-end to the date of the auditor’s report, while tax avoidance is measured using effective tax rate. Findings Using a sample of 45 South African companies over the period of 2010–2013, the authors document that ARL is positively associated with tax avoidance and this relationship remains positive when the company is audited by a Big-4 audit firm and not significant when the company is audited by a non-Big-4. Originality/value The authors’ findings have important implications for auditors aiming to reduce audit risk as they may consider the impact of tax avoidance and pay more attention to companies with a high degree of tax avoidance.

Tax avoidance, value creation and CSR – a European perspective

2017 ◽  
Vol 17 (5) ◽  
pp. 803-821 ◽  
Author(s):  
Dirk Kiesewetter ◽  
Johannes Manthey
Keyword(s):  
Corporate Governance ◽  
Social Responsibility ◽  
Market Economy ◽  
Value Creation ◽  
Tax Avoidance ◽  
Effective Tax Rate ◽  
Content Type ◽  
Tax Rate ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to answer how corporate governance and corporate social responsibility (“CSR”) affect the relationship between value creation and tax avoidance. This study further analyses the impact of the institutional environment, i.e. whether a country is rather a liberal or a coordinated market economy, on the relationship between CSR and tax avoidance. Design/methodology/approach The empirical analysis comprises a panel data set of 7,924 observations for the years from 2005 to 2014 for European companies. The relationship between value creation and tax avoidance is tested by grouping the sample in high and low CSR performers. Similarly, the impact of the type of market economy is analysed for the firms. Findings The research design does not find evidence that tax avoidance is creating value. The empirical findings reveal that there is a positive relationship between value creation and the effective tax rate for firms with low social and environmental characteristics. Further, this analysis could show that stronger corporate governance is associated with a lower effective tax rate in both coordinated and liberal market economies. The analysis identifies social strengths being associated with a higher effective tax rate for coordinated market economies. Practical implications It is proposed to encourage CSR disclosure. The creation of incentives for social strengths could increase tax revenue. Firms should reconsider whether the engagement in tax avoidance is worth it and pursue social responsibility to achieve higher value creation for their stakeholders. Originality/value The paper challenges the intuitive expectation that tax avoidance creates value. It is suggested that the governance and CSR culture, as well as the tax legislation in Europe, is different to the USA. Conclusively, tax avoidance is not generating value for the European sample.

Audit-related attributes, regulatory reforms and timely disclosure

2017 ◽  
Vol 15 (2) ◽  
pp. 158-179 ◽  
Author(s):  
Khaled Samaha ◽  
Hichem Khlif
Keyword(s):  
Audit Committee ◽  
Stock Exchange ◽  
Emerging Market ◽  
Chief Executive ◽  
Policy Implications ◽  
Fiscal Year ◽  
Audit Report ◽  
Content Type ◽  
The Impact ◽  
Regulatory Reforms

Purpose This paper aims to examine the impact of audit-related attributes and regulatory reforms on timely disclosure as proxied by audit report lag (ARL) in an emerging market setting, namely, Egypt. Design/methodology/approach The paper used the balanced panel data of 372 firm-years observations of the most actively traded companies on the Egyptian Stock Exchange over the period from 2007 to 2010. The study measures the dependent variable of ARL as the number of days between the client’s fiscal year-end and the audit report. Findings Multivariate analysis indicates that audit committee activity (proxy for regulatory reforms) and external auditor type (proxy for audit-related attributes) contribute significantly to the reduction of ARL and increase disclosure timeliness. Furthermore, the paper found that ARL witnessed a slight decrease following the adoption of the new Egyptian Standards on Auditing (ESA). Finally, the paper’s findings show that industry types moderate the relationship between ARL and several audit-related variables and corporate governance attributes. Practical implications The results may have policy implications for both regulators and investors. For instance, policymakers in Egypt can enact new rules to reduce the Chief Executive Officer duality and establish the minimum required number of audit committee meetings to improve transparency level and, thus, increase disclosure timeliness. Besides, if future regulations aiming to increase disclosure timeliness are intended by Egyptian regulators, this paper’s findings suggest that this may have implications for the audit market because the Big Four audit firms will be more able to meet shorter audit delays. Originality/value The empirical evidence provided in this study further enhances the understanding of timely disclosure in Egypt which represents one of the leading emerging markets in the Middle East and North Africa region.

scholarly journals Pengaruh Proporsi Kepemilikan Saham Asing dan Proporsi Direktur dan Komisaris Asing terhadap Penghindaran Pajak di Perusahaan Manufaktur Sektor Industri Barang Konsumsi Sub Sektor Makanan dan Minuman yang Terdaftar di Bursa Efek Indonesia

2021 ◽  
Vol 5 (4) ◽  
pp. 348
Author(s):  
Gregorius Fx Erick Tofani Riberu
Keyword(s):  
Stock Exchange ◽  
Tax Avoidance ◽  
Manufacturing Companies ◽  
Effective Tax Rate ◽  
Foreign Investors ◽  
Tax Rate ◽  
Food And Beverage ◽  
Board Directors ◽  
Foreign Directors ◽  
The Impact

The research aims to determine the impact of foreign investor’s interests on tax avoidance in Consumer Goods- Manufacturing Companies, in particular the food and beverage sector, listed in Indonesia Stock Exchange during the periods from 2011 to 2016. The interests of foreign investors are measured by two variable which are the percentage of ownership by foreign investors and the percentage of foreign directors and commisoners on the board directors. The methodology used in this research is sampling method, tested by multiple linear regression. Tax avoidance is measured by two approaches, i.e. Effective Tax Rate and Book Tax Different. This research concludes that the percentage of ownership by foreign investors and the percentage of foreign directors and commisoners on board directors show no significant effect to the corporate tax avoidance. Tujuan penulisan makalah ini adalah untuk mengetahui pengaruh proporsi kepemilikan saham asing dan proporsi direktur dan komisaris asing terhadap penghindaran pajak di perusahaan manufaktur sektor industri barang konsumsi sub sektor makanan dan minuman yang terdaftar di Bursa Efek Indonesia selama peiode tahun 2011 sampai dengan 2016. Teknik pengambilan sampel menggunakan metode purposive sampling, diuji dengan metode regresi linier berganda. Pengujian dilakukan dengan dua pendekatan yaitu Effective Tax Rate dan Book Tax Different. Berdasarkan hasil penelitian dapat disimpulkan bahwa dengan pendekatan ETR, proporsi kepemilikan saham asing tidak berpengaruh positif atas penghindaran pajak, namun proporsi direktur dan komisaris asing berpengaruh positif terhadap penghindaran pajak meskipun tidak signifikan. Sedangkan dengan pendekatan BTD proporsi kepemilikan saham asing bepengaruh positif terhadap penghindaran pajak meskipun tidak signifikan, dan proporsi direktur dan komisaris asing tidak berpengaruh positif terhadap penghindaran pajak. 

Office-Level Characteristics of the Big 4 and Audit Report Timeliness

2014 ◽  
Vol 33 (3) ◽  
pp. 129-152 ◽  
Author(s):  
James D. Whitworth ◽  
Tamara A. Lambert
Keyword(s):  
Financial Reporting ◽  
Low Cost ◽  
Fiscal Year ◽  
Audit Report ◽  
Audit Firm ◽  
Big 4 ◽  
Office Size ◽  
Reporting Environment ◽  
The Impact ◽  
Industry Expertise

SUMMARY: Recent changes in the audit and financial reporting environment have resulted in longer audit report lags and have increased the importance of identifying factors associated with a timely audit. We examine timeliness implications of office-specific attributes of the audit firm. Specifically, we examine whether office-specific industry expertise, office size, and the importance of the client to the local office are associated with audit delay (i.e., the time between fiscal year-end and the audit report date). We explore the sensitivity of our results to various measures and consider the impact of earnings quality. We examine two types of industry expertise and whether the aforementioned audit firm attributes are associated with a propensity to issue an early earnings announcement. We find that office-specific industry expertise is negatively associated with audit delay (for all but the largest quartile of firm offices) while office size and client importance are both positively associated with audit delay; however, the most important clients are associated with a more timely audit. Office-specific industry expertise is positively associated with the propensity to announce earnings substantially early and such expertise garnered via a product-specialist strategy is positively associated with audit delay relative to a low-cost specialist strategy. Our study provides further support for the importance of office-specific characteristics on audit and financial reporting outcomes and provides evidence of the benefit of office-specific industry expertise.

Auditor-provided tax services and long-term tax avoidance

2015 ◽  
Vol 14 (3) ◽  
pp. 285-305 ◽  
Author(s):  
Brian Hogan ◽  
Tracy Noga
Keyword(s):  
Negative Relationship ◽  
Tax Avoidance ◽  
Cost Benefit ◽  
Tax Rates ◽  
Negative Consequences ◽  
Effective Tax Rate ◽  
Accounting Firms ◽  
Content Type ◽  
Tax Rate

Purpose – The purpose of this paper is to determine the association between auditor-provided tax services (APTS) and long-term corporate tax rates. Design/methodology/approach – The paper uses empirical data and multivariate regression models to explore the relationship between a firm’s use of APTS and their long-term effective tax rate. Findings – An economically and statistically significant long-term negative relationship was found between firm levels of APTS and taxes paid. Further, a portion of this benefit is lost for some firms when returning to their auditor for tax services even after a short break. Originality/value – This paper contributes to the debate regarding the value of APTS by providing evidence of the apparent long-term negative consequences to firms who reduce their reliance on APTS, perhaps even through the engagement of separate accounting firms for their audit and tax functions, although these consequences may be mitigated upon return with a significant increase in APTS. However, this is the first study, to our knowledge, to explore, in a long-term setting, the consequences of a firm’s return to their auditors for a non-audit service previously reduced or terminated. Additionally, further incremental contributions are made to other studies that look at APTS and tax avoidance by studying the long-term relationship which allows firms to consider the cumulative cost/benefit relationship between independence and knowledge spillover.

scholarly journals THE ROLE OF CORPORATE DIVERSIFICATION IN TAX AVOIDANCE IN COMPANIES LISTED IN THE TEHRAN STOCK EXCHANGE

2019 ◽  
Vol 7 (1) ◽  
pp. 291-299
Author(s):  
Mohammad Vahdani ◽  
Abdolhossein Talebi Najafabadi ◽  
Narjes Kamali Kermani ◽  
Zahra Farhadi
Keyword(s):  
Confidence Level ◽  
Stock Exchange ◽  
Tax Avoidance ◽  
Financial Information ◽  
Corporate Diversification ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
The Government ◽  
A Charge ◽  
The Impact

Purpose of the Study: Tax avoidance means the use of gaps in tax laws for non-payment or late payment of taxes for companies, which is affected by different factors. The present study investigates the impact of diversification on tax avoidance in companies. To this end, the financial information of 384 firms during the period of 2011- 2016 in the Tehran Stock Exchange was examined. Methodology: In this research, the required financial information was summarized, classified, and calculated in Excel software and the data were analyzed by using E-views software. The dependent variables were effective tax rate and book-tax difference, while the independent variable was corporate diversification, which shows how to divide the market between business sectors (units) in a company. Control variables include size, financial leverage, company’s loss-making, ROA, capital expenditures, R&D, market to book value, CEO ownership, and management of ownership. Conclusions/Results: The findings obtained from this study demonstrate that at a 95% confidence level, there is no significant relationship between diversification and effective tax rates in companies listed in the Tehran Stock Exchange. However, at a 90% confidence level, diversification reduces the effective tax rate. Furthermore, no reliable evidence was found regarding the effect of diversification on book-tax difference at a 95% confidence level. Novelty: Tax is a charge imposed by the government on all organizational profits. Various enterprises have complex operations due to their institutional structure, which makes it possible to increase tax avoidance in these companies. The production or sale of a variety of products (diversification) is bigger and has more complex organizational structures that increase the cost of management and non-management decisions, making it difficult for companies to coordinate their policies. Thematic classification: G10, M41

The Impact of Juror Knowledge of Deductibility and Defendants' Tax Rates on Punitive Damages Awards: Experimental Evidence

2021 ◽  
Author(s):  
Bryan Church ◽  
Karie Davis-Nozemack ◽  
Lucien Dhooge ◽  
Shankar Venkataraman
Keyword(s):  
Tax Avoidance ◽  
Control Group ◽  
Punitive Damages ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
The Us ◽  
Juror Knowledge ◽  
The Cost ◽  
The Impact

The US Tax Code allows corporate defendants to treat punitive damages as a deductible expense. Legal scholars argue that tax-unaware jurors fail to recognize that deductibility significantly reduces defendants' after-tax punishment, leading to an under-punishment problem. They propose that explicitly informing jurors about tax-deductibility could mitigate this problem. We conduct an experiment to test this claim. Compared to a control group of jurors who are told nothing about taxes, jurors who learn about tax-deductibility award higher damages when the defendant's effective tax rate (ETR) is low, but not when ETR is high. Our results highlight the cost of tax avoidance (low ETRs) for firms in a previously unexamined setting. Our findings suggest that allowing jurors to consider tax-deductibility leads to higher damages only under a narrow set of circumstances, offering limited support for the under-punishment hypothesis. Our results should be of interest to scholars in accounting, law, and public policy.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

The impact of countries' transfer pricing rules on profit shifting

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Alex A.T. Rathke ◽  
Amaury José Rezende ◽  
Christoph Watrin
Keyword(s):  
Transfer Pricing ◽  
Tax Avoidance ◽  
Profit Shifting ◽  
Content Type ◽  
Tax Rate ◽  
Pricing Rules ◽  
Transfer Prices ◽  
Extensive Information ◽  
Import And Export ◽  
The Impact

PurposeThis study investigates the impact of different transfer pricing rules on tax-induced profit shifting. Existing studies create different enforcement rankings of countries based on specific transfer pricing provisions on the assumption that larger penalties and more extensive information requirements imply higher tax enforcement. This assumption carries limitations related to the impact of transfer pricing rules in different countries and to the interaction of different tax rules. Instead, the authors propose a nonordered segregation of groups of countries with different transfer pricing rules, and they empirically investigate the impact of these transfer pricing rules on the profit-shifting behavior of firms.Design/methodology/approachThe authors apply the hierarchical clustering method to analyze 57 observable quantitative and qualitative characteristics of transfer pricing rules of each country. This approach allows the creation of groups of countries based on a comprehensive set of regulatory characteristics, to investigate evidence of profit shifting for each of these separate groups. Profit-shifting behavior is measured by the variation in the volume of import and export transactions between local firms and related parties located in other countries.FindingsThe results indicate that firms have a higher volume of intrafirm transactions with related parties located in countries with a lower tax rate. This result is consistent with the profit-shifting hypothesis. Moreover, the results show that relevant differences in transfer pricing rules across countries produce different effects on the volume of intrafirm transactions. The authors observe that the existence of domestic transfer pricing rules that override the OECD Transfer Pricing Guidelines may inhibit profit shifting. In addition, the results suggest that the OECD guidelines may facilitate profit shifting. Overall, it is observed that some transfer pricing rules may be more effective than others in curbing profit shifting and that firms are still able to manipulate transfer prices under some tax rules.Research limitations/implications(1) The authors focus on the Brazilian context, which provides a suitable set of profit-shifting incentives for the analysis, since it combines an extreme corporate tax rate, a highly complex tax system, and a unique set of transfer pricing rules. (2) Profit-shifting behavior is captured by the volume of intrafirm transactions. The authors would prefer to observe the transfer price directly; however, this information is not disclosed by firms, for it may represent a limitation to the investigation. Nonetheless, theory shows that the profit-shifting behavior is reflected by the manipulation of both transfer prices and intra-firm outputs.Practical implicationsThe authors find that the volume of intrafirm transactions may decrease or increase, depending on the transfer pricing system of the foreign country (including the tax-differential effect). It suggests that some transfer pricing rules are more effective than others in curtailing the profit-shifting behavior and that firms are still able to find vulnerabilities in current rules and take advantage of them in deploying a profit-shifting strategy.Social implicationsResults provide knowledge about how key differences on transfer pricing rules across countries influence the profit-shifting behavior. The results of the study may have valuable application in solving regulatory mismatches, to eliminate blind spots in transfer pricing rules and thus to contribute to the current review of OECD guidelines and to the global tax reset movement.Originality/valueRecent studies suggest that if tax-avoidance incentives are somewhat weak, it becomes difficult to observe the shifting behavior of firms. The puzzle is to check whether profit shifting is nonexistent under weak incentives or whether this is a matter of methodological limitations. The authors’ analysis is applied to a complex tax background with strong profit-shifting incentives; thus, it allows the authors to obtain robust evidences of the shifting behavior and the effect of different transfer pricing rules.

scholarly journals Do Overlapped Audit Committee Directors Affect Tax Avoidance?

2021 ◽  
Vol 14 (10) ◽  
pp. 487
Author(s):  
Hidaya Al Lawati ◽  
Khaled Hussainey
Keyword(s):  
Financial Institutions ◽  
Audit Committee ◽  
Stock Exchange ◽  
Research Question ◽  
Tax Avoidance ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
The Impact ◽  
A Company ◽  
Advisory Role

This research is motivated by the Omani government’s desire to reduce tax avoidance and bolster tax revenue collected from financial institutions. The purpose of this paper is to examine the impact of overlapped audit committee (AC) chairs and other directors on tax avoidance practice and whether they play a monitoring or advisory role in tax avoidance practice. As a measure of overlapped AC chairs, we used a dummy variable to indicate whether an AC chair sits on other committees within a company or not. We used the proportion of AC members who serve on the AC and other committees within a company as our proxy for overlapped AC directors. We used a company’s cash effective tax rate as a proxy for tax avoidance. We regressed tax avoidance on overlapped AC membership and other control variables, using a sample of 204 firm-year observations from financial institutions listed on the Muscat Stock Exchange between 2014 and 2019. Our regression results show that a higher proportion of overlapped AC members and the presence of an overlapped AC chair were both associated with lower effective tax rates, which equated to more tax avoidance. This suggests that these directors play an advisory role in the Omani context. We found, however, that these directors play a monitoring role when firms take a loss. From these findings, we draw important implications for regulators who need to rethink the potential consequences of having overlapped AC chairs and AC directors. Our study focuses on Omani financial institutions, which are highly regulated and monitored by the central bank, and our findings may not be directly applicable to non-financial institutions that are less regulated, so caution is needed when interpreting the findings. Further research could employ a repeated measured research design, such as ours, and explore the same research question in non-financial institutions.

Sign in / Sign up

Export Citation Format

Share Document