The effect of audit fees, audit quality and board ownership on tax aggressiveness: evidence from Thailand

PurposeThe purpose of this study is to investigate the effect of audit fees, auditors' quality and board ownership on tax aggressiveness in Thailand.Design/methodology/approachThe sample of this study is based on 215 firm-year observations of SET-100 listed companies in Thailand during the 2010–2018 periods. This study employs a panel least square regression with period fixed effects. The study retrieved the corporate governance variables from the downloaded annual reports, whilst the remaining data were collected from the EMIS database.FindingsThis study provides evidence that audit fees reduce tax aggressiveness and board ownership enhance tax aggressiveness among the firms. Nonaudit services provided by auditors impair auditors' independence and lead to higher tax aggressiveness. The result supports the agency theory, which explains that managers and blockholders may enjoy private benefits of control at the expense of other shareholders in the absence of market control. Thus, firms need good governance practices such as incentives paid for the effort of auditors and nonaudit services monitoring to curb such exploitation.Research limitations/implicationsThe results provide implications to the firms and regulators that incentives to the monitoring parties such as auditors can reduce tax aggressiveness among the firms. Nevertheless, higher ownership given to boards as incentives may lead to concentrated ownership and thus lead to the type 2 agency problem, which is between majority and minority shareholders. The result also provides caution to the regulators to monitor the nonaudit services provided by the auditors as it might impair their independence and compromise the tax paid to IRB.Originality/valueThis study is pioneer research discussing tax avoidance in Thailand. The Thai Government has been noticing that tax avoidance is being performed in the country, but academic discussion on this topic had never been elaborated.

Nonaudit services, audit committee characteristics and accruals quality in Malaysia

PurposeThe study examines the relationship between nonaudit services (NAS) and accruals quality in Malaysia. The study also considers several important characteristics of audit committee as the determinant for accruals quality. Next, the study examines whether these characteristics mitigate the relationship between NAS and accruals quality.Design/methodology/approachThe study employs descriptive analysis, univariate tests and multivariate regression to investigate the potential effect of NAS on acruals quality. Data for audit committee characteristics were hand collected from annual reports downloaded from Bursa Malaysia's website.FindingsBased on 1,118 firm-year observations for the period 2009–2011, the study finds that NAS negatively impact accruals quality. This empirical result indicates that the economic bond that is created between auditors and clients restricts the auditors from performing their duty objectively. A fully independent audit committee weakens the negative relationship between NAS and auditor independence.Research limitations/implicationsThe sample period represents a limitation since it only covers three years of data. This limitation is largely driven by the nature of data collection of NAS fees.Practical implicationsThese results contribute to Malaysia's policy deliberation to account for the effects of NAS on auditor independence and the oversight role of an audit committee. This study contributes to theoretical perspectives on accruals quality and corporate governance in Malaysia.Originality/valueThe novelty of this research, coupled with institutional data in Malaysia, claims the originality of this research.

Internal Auditing Outsourcing, Nonaudit Services and Audit Fees

This study examines the relationship between outsourced internal audits, nonaudit services and audit fees. We use Malaysian data to show that client firms that outsource their internal auditing function (IAF) are associated with lower external audit fees than those with in-house IAF. Moreover, this negative relationship is significantly stronger for firms that purchase greater amounts of nonaudit services (NAS) from the auditor. The results suggest that an auditor who provides NAS to a client and thus earns additional overall revenue is willing to accept lower audit fees provided a high audit quality can be achieved through reliance on outsourced IAFs.

Analysis of the Sarbanes-Oxley Ban on Non-Audit Services From an Auction Model Perspective

This study analyzes the impact of the Sarbanes-Oxley Act’s (SOX) ban on providing both auditing and nonaudit services by auditors to their clients. We use a first-price private value auction to compare a setting in which auditors can compete for both audit and nonaudit services with an auction in which they can compete for only one of the two services. Consistent with empirical studies, we show that the ban on nonaudit services results in fee hikes for both audit and nonaudit services, as the number of bidders (audit firms) is smaller in the post-SOX setting relative to pre-SOX setting in both auctions. Consequently, we demonstrate that, after the ban, payoffs have increased for audit firms and decreased for their clients, due to the increase in both audit and nonaudit services fees. Finally, we show that increasing the penalty for an audit failure, contrary to common wisdom, results in improved payoffs for audit firms.

Auditor-Provided Tax Nonaudit Services and the Implied Cost of Equity Capital

SUMMARY Although the Sarbanes-Oxley Act of 2002 (SOX) banned most nonaudit services (NAS), it did not restrict auditors from providing tax NAS to their audit clients. In the post-SOX period, regulators and investors are highly concerned about the increase in tax NAS and consequently calling for restrictions. The profession contends that tax NAS are beneficial to the audit and opposes limitations. We contribute to this ongoing debate and fill a void in the literature by examining investors' perception of auditor-provided tax NAS, as reflected in the implied cost of equity capital. Our results suggest that investors require higher cost of equity capital for clients that generate more tax NAS revenue for their auditor's office. Further tests reveal that our main finding is driven by audit clients that report more uncertain tax reserves (higher tax risk), rather than clients that exhibit poor financial reporting quality. The effects we document are economically significant and robust to a large battery of sensitivity tests. Our findings suggest that investors seem to negatively perceive tax NAS because of punitive and cash flow risks associated with tax NAS. Data Availability: All data are publicly available from sources identified in the text.