The purpose of this paper is to examine the association between audit report lag (ARL) and tax avoidance and test whether external auditor type affects this relationship.
ARL is measured as the number of days from fiscal year-end to the date of the auditor’s report, while tax avoidance is measured using effective tax rate.
Using a sample of 45 South African companies over the period of 2010–2013, the authors document that ARL is positively associated with tax avoidance and this relationship remains positive when the company is audited by a Big-4 audit firm and not significant when the company is audited by a non-Big-4.
The authors’ findings have important implications for auditors aiming to reduce audit risk as they may consider the impact of tax avoidance and pay more attention to companies with a high degree of tax avoidance.
