The Changing Role of Auditors in Corporate Tax Planning

41 Pages Posted: 8 Sep 2005 Last revised: 9 Dec 2022

See all articles by Edward L. Maydew

Edward L. Maydew

University of North Carolina at Chapel Hill

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

Date Written: August 2005

Abstract

This paper examines changes in the role that auditors play in corporate tax planning following recentevents, including the well-known accounting scandals, passage of the Sarbanes-Oxley Act, andregulatory actions by the SEC and PCAOB. On the whole, these events have increased thesensitivity to and scrutiny of auditor independence. We examine the effects of these events on themarket for tax planning, in particular the longstanding link between audit and tax services. Whilethe effects are recent, they are already being seen in the data. Specifically, there has already beena dramatic shift in the market for tax planning away from obtaining tax planning services from one'sauditor. We estimate that the ratio of tax fees to audit fees paid to the auditors of firms in the S&P500 decline from approximately one in 2001 to one-fourth in 2004. At the same time, we find noevidence of a general decline in spending for tax services. In sum, the evidence indicates adecoupling of the longstanding link between audit and tax services, such that firms are shifting theirpurchase of tax services away from their auditor and towards other providers.

Suggested Citation

Maydew, Edward L. and Shackelford, Douglas A., The Changing Role of Auditors in Corporate Tax Planning (August 2005). NBER Working Paper No. w11504, Available at SSRN: https://ssrn.com/abstract=775994

Edward L. Maydew

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

Douglas A. Shackelford (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
919-962-3197 (Phone)
919-962-4727 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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