The Association between Auditor Provided Tax Planning and Tax Compliance Services and Tax Avoidance and Tax Risk

This study examines associations between auditor-provided tax compliance and tax planning services and tax avoidance and tax risk outcomes cited by firms and practitioners as particularly important in the current tax environment. Collectively, our results suggest that companies paying their auditors for tax planning advice are more effective tax planners (in terms of higher tax avoidance, and lower tax risk) than firms that do not engage their auditor for tax work. Our tax rate avoidance results are more pronounced for clients of auditors with more tax expertise and for firms with higher tax and operational complexity. We also find that our tax avoidance results hold only when firms also engage their auditors for tax compliance work, which is consistent with auditors seeking to minimize reputation threats. Our study’s unique hand-collected panel dataset provides a more precise and nuanced perspective on the role auditors play in designing and overseeing tax outcomes.