The Changing Role of Auditors in Corporate Tax Planning
NBER Working Paper No. 11504
This paper examines changes in the role that auditors play in corporate tax planning following recent
events, including the well-known accounting scandals, passage of the Sarbanes-Oxley Act, and
regulatory actions by the SEC and PCAOB. On the whole, these events have increased the
sensitivity to and scrutiny of auditor independence. We examine the effects of these events on the
market for tax planning, in particular the longstanding link between audit and tax services. While
the effects are recent, they are already being seen in the data. Specifically, there has already been
a dramatic shift in the market for tax planning away from obtaining tax planning services from one's
auditor. We estimate that the ratio of tax fees to audit fees paid to the auditors of firms in the S&P
500 decline from approximately one in 2001 to one-fourth in 2004. At the same time, we find no
evidence of a general decline in spending for tax services. In sum, the evidence indicates a
decoupling of the longstanding link between audit and tax services, such that firms are shifting their
purchase of tax services away from their auditor and towards other providers.
Published: Auerbach, Alan J., James R. Hines, Jr., and Joel B. Slemrod (eds.) Taxing Corporate Income in the 21st Century. Cambridge: Cambridge University Press, 2007.
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