ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effects of Audit Quality on Book-Tax Reporting Differences

  • SangHun Kim Dankook University

Asian Tax Journal Vol. 8 No. 1 (2007), pp. 47-78

Abstract

This paper empirically analyzes the effect of audit quality on book－tax reporting differences as measures of earnings management. Specifically, current academic study shows mixed results on whether nonaudit services provided by an auditor compromise audit quality. Prior literature shows that book－tax reporting differences contain useful information as measures of detecting earnings management. So exploring this topic by different measures of detecting earnings management is clearly an important research. This paper investigates whether auditor change, audit services time and nonaudit services affect book－tax reporting differences as a proxy for earnings management, instead of accounting accrual, Empirical findings are summarized as follows：There is no significant association between auditor change and book－tax reporting differences. But there is significant negative association between an amount of audit services time and book－tax reporting differences. Also there is no significant association between book－tax reporting differences and nonaudit services provided by an auditor. These results imply that audit services time has an effect on audit quality but auditors' independence is not impaired by nonaudit services.

Keywords

  • book-tax reporting differences
  • audit quality
  • nonaudit service

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