The Impact of Different Audit Quality Measures on Tax Risk Criteria with Emphasis on Horizontal and Vertical agency costs

Abstract

The purpose of this study was to evaluate the impact of different audit quality measures on tax risk. For this purpose, tax risk was used as a dependent variable with five criteria: annual effective rate, average effective rate, gap rate, expected risk rate and effective cash flow rate. In addition, the audit quality with unconventional accruals criteria, earnings fluctuation, earnings smoothing, accruals, cash flows, auditor specialty and auditor size as independent variables along with horizontal representation costs and vertical agency costs, has been used. To investigate the issue, financial information of 118 stock companies during the years 2012 to 2019 was analyzed in 35 regression models. Relationship analysis showed that audit quality was based on seven measures (unconventional accruals, earnings volatility, earnings smoothing, accruals, cash flows, and auditor specialty and auditor size) on tax risk (annual effective rate, effective rate). Medium, gap rate, expected risk rate and effective cash flow rate) have a significant negative impact. Horizontal agency costs have a positive and significant effect on tax risk in terms of concentration of ownership and managerial ownership. Agent costs have a positive and significant effect on tax risk in terms of the level of activity of the Board of Directors and the Audit Committee.

Keywords

• tax risk proxies
• audit quality proxies
• horizontal and vertical agency costs