Auditor-provided tax services and tax accrual quality in Brazil

Abstract

ABSTRACT This research aimed to analyze the temporal association between auditor-provided tax services (APTS) and corporate income tax accrual quality in the Brazilian context. Studies analyzing the influence of APTS on tax accrual quality are scarce and have only been carried out in the United States of America (USA), so that this relationship is not yet clearly understood due to lack of evidence in other institutional contexts. Research results expand international evidence on the theme and enrich empirical literature on auditing and taxation. Also, these results have implications for regulators, companies that contract tax services from their auditors, auditing firms that provide such services, and academic researchers, because they contradict the knowledge spillover argument and reinforce the idea that APTS can compromise auditor independence in the case of institutional configurations such as the Brazilian one. The research adapted the empirical model of Choudhary et al. (2021) and estimated the relationship between the variables of interest using panel data with robust standard errors and a variety of econometric models that address issues related to unobserved heterogeneity between firms, endogeneity, selection bias, outliers, and specification error. We document new evidence of the negative and statistically significant association between APTS and income tax accrual quality, contributing to the ongoing debate about imposing limitations on auditor provision of non-audit services and the role of tax services in accounting information quality.

Keywords

• corporate income tax
• auditor
• tax accrual
• knowledge spillover
• audit quality