This study investigates the relationship between tax avoidance and audit report lag (ARL) and examines whether audit quality moderates this association. Underpinning the agency theory, the study argues that managerial incentives to minimize taxes increase information asymmetry and audit complexity, thereby extending audit completion time. However, high-quality audits can mitigate these effects through enhanced monitoring and efficiency.
Using a sample of manufacturing firms listed on the Dhaka Stock Exchange, the study employs multiple proxies for tax avoidance such as the effective tax rate, cash flow effective tax rate and book–tax difference. Audit quality is proxied by audit fees and discretionary accruals. The analysis applies a two-step system generalized method of moments (GMM) estimator to address endogeneity and firm-specific effects.
The results show a positive and significant association between tax avoidance and ARL, indicating that tax-aggressive firms experience longer audit delays. However, audit quality significantly weakens this relationship, implying that high-quality auditors enhance audit efficiency and reduce the delays caused by complex tax strategies.
The findings highlight the importance of strengthening audit quality to improve reporting timeliness and financial transparency, particularly in emerging economies such as Bangladesh.
To the best of the authors’ knowledge, this is the first study to examine the moderating role of audit quality in the relationship between tax avoidance and ARL. The study extends agency theory and contributes to the literature on auditing and tax governance in developing economies.
