Working Paper: The Role of In-house Tax Experts in Audit Engagements 

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

Abstract: We use unique PCAOB data to examine the role of in-house tax experts in audit engagements. First, on average, tax expert effort (i.e., hours charged to the engagement) amounts to five percent of the core audit team hours and is correlated with client complexity. Second, higher tax expert effort is positively associated with identifying tax-related internal control material weaknesses and an increased incidence of restatements. Finally, higher tax expert effort is associated with more conservative unrecognized tax benefits and valuation allowances. Our findings suggest that higher tax expert effort is an appropriate auditor response to complex tax estimates, aids in identifying internal control issues, and is associated with variation in tax estimates. However, higher tax expert use alone is not enough to fully mitigate a higher risk of tax-related material misstatements. Such implications align with academics and regulators’ concerns about the effective use of experts and specialists in audit engagements.  

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