ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Tax Specialist Auditors and Tax Avoidance: Small and Medium－Sized Accounting Firms

  • Hyun Ah Kim Korea University of Technology and Education

Asian Tax Journal Vol. 26 No. 1 (2025), pp. 9-36

Abstract

This study examines the relationship between the tax expertise of small and medium－sized accounting firms(non－Big4) and the tax avoidance of their client firms. Prior literature reports the knowledge spillover effect of tax expertise. However, a significant portion of the sample consists of Big4 and non－Big4 typically do not have tax－specific partners and departments unlike Big4, which may lead to different outcomes regarding the tax expertise of non－Big4. The analyses are conducted on 3,829 firm－year observations of listed companies audited by non－Big4 from 2020 to 2022, during which the auditor registration system for public firms and the periodic auditor designation system were fully implemented. Tax expertise is defined as the top or top two positions in non－audit service revenue related to tax consulting in accounting firms’ annual reports, while tax avoidance is measured using the method of Desai and Dharmapala(2006). The results show a significant negative association between tax expertise of non－Big4 and tax avoidance and it is maintained when auditors do not provide tax－related non－audit services, suggesting that the knowledge spillover effect, which could increase tax avoidance, does not exist in the case of non－Big4. Additional analyses confirm that the results remain consistent when tax expertise is defined based on the proportion of other tax revenue relative to audit revenue. This study extends prior research through the results that tax expertise of non－Big4 does not contribute to the tax avoidance of their client firms. Additionally, it also contributes to the literature by introducing a new measure of tax expertise for non－Big4. Furthermore, as tax strategies are among the critical decisions for a firm, this study contributes by suggesting the need to consider the influence of small and medium－sized accounting firms when selecting auditors.

Keywords

  • Tax Specialist Auditor
  • Tax Avoidance
  • Small and Medium－Sized Accounting Firms

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Asian Tax Journal

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