Working Paper: Auditor-Employed Tax Experts and Audit Quality

Paper Authors: Ally Zimmerman, Miguel Minutti-Meza, Saad Siddiqui, and Andrew Bauer

Abstract: Using PCAOB data, we examine variation in the involvement of auditor-employed tax experts to assist the audit team. Tax expert hours average five percent of total audit hours and are associated with several proxies for the complexity of tax estimates. Next, higher expert involvement is positively associated with the incidences of tax-related material weaknesses and restatements. These findings suggest that, on average, expert involvement increases detection of internal control issues, but does not eliminate misstatement risk. However, comparing early versus late tax expert involvement during the audit, earlier involvement is associated with a lower incidence of material weaknesses and but not associated with a higher incidence of restatements. Hence, the implications of expert involvement for audit quality depend on early coordination between auditors and experts. Our study sheds light on the nuances of using tax experts effectively to aid the core audit team in complex engagements.  

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