Audit fees and book-tax differences
Author(s)
Hanlon, Michelle; Krishnan, Gopal V.; Mills, Lillian F.
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We investigate whether book-tax differences are associated with higher audit fees, a proxy for auditor risk assessments and auditor effort. Our evidence suggests that there is a significantly positive relation. Further, this association is larger for firms that appear to have managed earnings (i.e., have high accruals) relative to those that are tax avoiders (i.e., have low cash effective tax rates). Our evidence is consistent with large book-tax differences representing an observable proxy for earnings management that is associated with auditor decisions. Our study contributes to capital market research that examines audit fees, as well as other research that examines the usefulness of book-tax differences for market participants.
Date issued
2012-01Department
Sloan School of ManagementJournal
Journal of the American Taxation Association
Publisher
American Accounting Association
Citation
Hanlon, Michelle, Gopal V. Krishnan, and Lillian F. Mills. “Audit Fees and Book-Tax Differences.” The Journal of the American Taxation Association 34.1 (2012): 55–86.
Version: Author's final manuscript
ISSN
0198-9073
1558-8017