Abstract

This study examines whether the reporting of tax－related accounts as Key Audit Matters (KAM) provides informational value regarding corporate tax avoidance behavior. KAMs represent issues deemed particularly significant by auditors during the audit period, and the inclusion of tax accounts indicates their complexity or high level of uncertainty. The study predicts that the inclusion of tax accounts in KAMs provides informational usefulness about the Book－Tax Difference (BTD) of firms. The sample consists of listed firms that reported tax－related accounts as KAMs between 2020 and 2022, following the introduction of mandatory KAM reporting under revised auditing standards (ISA 701－8). Our finding is following three main results. First, that firms reporting tax－related accounts as KAMs exhibited significantly larger BTDs compared to those that did not. Second, greater auditor effort, measured as above － industry － average levels, reduced the BTD. Furthermore, for firms audited by non－big 4 firms, the effect of KAM reporting on BTD was more pronounced, suggesting challenges in detecting tax avoidance strategies. This study demonstrates that KAM reporting provides critical information about corporate tax avoidance behavior, serving as an important signal to stakeholders and tax authorities about potential tax risks. It highlights that audit reports can function as valuable tools not only for financial information disclosure but also for evaluating corporate tax practices. In addition, the study confirms that increased auditor effort can mitigate tax avoidance and underscores the need for enhanced policy measures to improve the audit quality of non－big 4 firms.

Keywords

• Key Audit Matters (KAM)
• Tax avoidance
• Book－Tax difference (BTD)
• Information role of audit report

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