This study examines the corporate tax consequences of the European Union (EU) audit reform, which restricts the provision of non-audit services (NAS) by statutory auditors and grants Member States discretion to prohibit or allow auditor-provided tax services (APTS). This study aims to assess how the prohibition of APTS affects firms’ tax behaviour and reporting.
Using a difference-in-differences research design, the study analyses a panel of publicly listed European firms around the implementation of the Reform. It compares tax-related outcomes between firms located in Member States that prohibited APTS and those in Member States that derogated from the prohibition. Tax avoidance, tax-related Key Audit Matters (KAMs) and tax accrual quality serve as outcome variables. Additional analyses investigate the moderating role of auditor expertise, using multiple proxies for industry and tax specialisation.
The findings reveal that firms in countries prohibiting APTS exhibit significantly lower tax avoidance, fewer tax KAMs and lower tax accrual quality relative to firms in countries that derogate from this Regulation. The involvement of industry or tax-specialist auditors attenuates these negative effects on tax outcomes, thus partially offsetting the loss of knowledge spillover due to the Reform.
This study contributes to audit literature by documenting both intended and unintended tax consequences of NAS prohibitions. It offers practical insights for regulators and policymakers evaluating the post-implementation impact of the EU Audit Reform on financial reporting and corporate tax practices.
