Mandatory audit partner's rotation and corporate tax avoidance: Early evidence from form AP disclosure

This study examines the impact of mandatory audit partner's rotation on corporate tax avoidance. Using audit partners’ information disclosed in Form AP, we find that companies generally increase their effective tax rates (ETRs) after audit partner's mandatory rotation, and the increase is...

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Bibliographic Details
Published inThe Journal of corporate accounting & finance Vol. 32; no. 2; pp. 102 - 113
Main Authors Liu, Chenyong, Xu, Chunhao, Wang, Xiaohong (Sara)
Format Journal Article
LanguageEnglish
Published Hoboken Wiley Periodicals Inc 01.04.2021
Subjects
Audit partner mandatory rotation
Auditor changes
Auditor‐provided tax services
Audits
Big Four accounting firms
Corporate tax avoidance
Corporate taxes
Form AP
Tax avoidance
Tax rates
Tax services
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Summary:This study examines the impact of mandatory audit partner's rotation on corporate tax avoidance. Using audit partners’ information disclosed in Form AP, we find that companies generally increase their effective tax rates (ETRs) after audit partner's mandatory rotation, and the increase is specifically driven by companies hiring non‐Big four auditors. This implies that incoming auditors, especially those from non‐Big four accounting firms, are more conservative in tax issues. Further analysis suggests that companies engaging in less tax avoidance before and simultaneously purchasing tax services from their auditors have less increase in ETRs after an audit partner's rotation. The findings of this study assist both audit practitioners and tax regulators to better understand the impact of audit partner rotation on firm's tax behaviors.
ISSN:1044-8136
1097-0053
DOI:10.1002/jcaf.22489