ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Tax Avoidance and the Characteristics of the Support Organization of the Audit Committee

  • Kim SeonMi Chonnam National University
  • Shin sang-hoon Netmarble

Asian Tax Journal Vol. 24 No. 1 (2023), pp. 129-157

Abstract

This paper investigates the relation of the characteristics of the internal audit department on tax avoidance. The purpose of this study is to analyze the impact of the existence of the internal audit department that supports the audit Committee as a part－time organization, and the internal audit department with a practical internal audit function on tax avoidance. If it is common for audit committees to enhance accounting transparency as the main role, we can expect that audit committees restrict tax avoidance of firms. According to a recent newspaper article, internal audit department should help to increase tax revenue with greater accounting transparency (Joseilbo, 2020.07.03.), we propose that internal audit department will be particularly important to strengthen accounting transparency for audit committees in some circumstances. Prior studies focus on impact of the manpower composition (CPA, the number of employees, etc) or operation of internal accounting management system on the accounting errors, finance decision, and so on (Ryu et al. 2012；Choi 2020；Kim 2020；etc). On the other hand, this study examines the operational status of internal audit function for strengthening the audit committee’s capacity and the impact on corporate accounting transparency as a tax perspective. To evaluate whether internal audit department mitigates or intensify tax avoidance, we first examine a setting in which firms have the internal audit department are likely reduced tax avoidance. We also examine how these internal audit department roles affect tax avoidance differently. As a result of analyzing listed companies during the sample period of 2018－2020, there is a negative (－) relationship between the existence of the support organization of audit Committee and tax avoidance (BTD and DD_BTD), but it is not be statistically significant. In contrast, we find that the level of tax avoidance decreased in the case of firms with an internal audit organization or the support organization with an internal audit function. This means that firms with the actual internal audit function has a positive effect on enhancing corporate transparency by reducing behavior of tax avoidance. The results of this study have an additional contribution by presenting the direction for the effective operation and institutional effectiveness of internal audit department to evaluate the operation status of the internal accounting management system. In addition, regulatory authorities are aware of the need to secure manpower and budget, and to enhance the expertise of those in charge of small and medium－sized listed companies to effectively operate the audit committee. Thus, the analysis results of this study are meaningful in that we present a policy point for strengthening corporate governance of small and medium－sized listed companies. Also, the results of this study will be meaningful to examines the impact ESG. Thus, we highlight a previously undocumented benefit associated with effective role of internal audit department by supporting audit committees.

Keywords

  • Support of organization of the audit committee
  • Accounting Transparency
  • Tax avoidance
  • Internal audit function

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