Abstract

We empirically tested the hypothesis that communication between those charged with governance and external auditors will have a negative relationship with future tax burden. The number of communications between those charged with governance and external auditors used in the empirical test is measured as the number of communications between internal audit organizations and external auditors, based on data disclosed in individual companies' annual reports. As a result of the test, the regression sign of communication between internal audit organizations and external auditors is found to be significantly negative (－). This can be interpreted as active communication between those charged with governance and external auditors lowering the level of discretion, thereby lowering future tax burden. We additionally divided communication methods into face－to－face and non－face－to－face methods and tested how each communication method affected future tax burden. As a result of an additional test, the regression sign for the face－to－face communication method is found to be a significant negative (－) sign, but the regression sign for the non－face－to－face communication method is found to be insignificant. In this respect, it is believed that our main result is the effect of the face－to－face communication method. We believe that our contribution will be in that we provide results showing that communication between those charged with governance and external auditors can affect the future corporate tax burden of a company. Specifically, we believe that our results will provide useful data for policy decisions by regulators and decision－making by investors, as we provide empirical evidence that the method of communication has different relevance to future corporate tax burden.

Keywords

• Those Charged with Governance
• External Auditors
• Internal Audit Organizations

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