Abstract

This paper investigated whether (1) types of auditors (Big 4 vs. sole proprietor) and (2) auditing service affect tax reporting decision of a CPA in Korea. This study used 2×2 experiment on Korean CPAs using questionnaires. Each respondent was presented with three ambiguous tax scenarios. For each scenario, the subjects were asked to indicate how they would report the tax issue in the manner favorable to their clients. Based on the data analysis, first of all, the types of auditor have effects on tax reporting decision, and generally the CPAs who worked as sole proprietors tended to make tax decisions more favorably to their clients than the CPAs in the Big 4 firms. In one tax scenario, the difference between two groups is statistically significant. This means that the measures to lessen the aggressiveness of some CPAs -especially sole proprietors- in tax reporting are needed. However, the effects of auditing service on tax reporting decision were not found. This result implies that the Korean regulators should be circumspect in adopting the rules that forbid auditors to provide tax services to their clients.

Keywords

• tax
• tax preparer
• non-audit service
• CPA

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