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Audit Committee Financial Expertise, Litigation Risk, and Auditor‐Provided Tax Services†

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  • Jean Bédard
  • Suzanne M. Paquette

Abstract

The Sarbanes‐Oxley Act (SOX) greatly expanded audit committees' oversight responsibilities by requiring that they preapprove all non‐prohibited non‐audit services (NAS). Using data from 2003 to 2011, we find that tax NAS are significantly lower when accounting financial experts (ACT‐FEs) serve on the audit committee, suggesting that ACT‐FEs consider auditor independence risk, perceived and/or real, more than other members, including supervisory experts, to the point of not accepting any tax NAS, not even compliance. However, in firms with higher ex ante litigation risk, ACT‐FEs approve relatively more tax NAS than other members, suggesting that they accept the costs of a perceived lack of auditor independence from tax NAS in return for the potential benefits of increased financial reporting quality arising from tax NAS. Our analysis by subperiod (2003–2006 vs. 2007–2011) shows that this result is significant only in the second period. ACT‐FEs' differential evaluation of the trade‐off between the benefits and costs of joint audit and tax NAS provision between the two periods suggests the need for additional research in later post‐SOX years. Expertise financière des comités d'audit, risque de litige et services fiscaux offerts par les auditeurs La loi Sarbanes‐Oxley (SOX) a considérablement élargi les responsabilités des comités d'audit en matière de surveillance en les obligeant à préapprouver tous les services non liés à l'audit (SNA) qui ne sont pas interdits. À l'aide de données de 2003 à 2011, nous établissons que les SNA fiscaux sont considérablement moindres quand des experts de la comptabilité financière (ECP) siègent au comité d'audit, ce qui porte à croire que les ECP prennent davantage en compte les risques sur le plan de l'indépendance des auditeurs, qu'ils soient perçus ou réels, que les autres membres du comité, y compris les experts de la surveillance, au point de n'accepter aucun SNA fiscal, même ceux liés à l'observation fiscale. Toutefois, dans le cas des sociétés qui présentent un risque de litige ex ante plus élevé, les ECP approuvent relativement plus de SNA fiscaux que les autres membres du comité, ce qui donne à penser qu'ils acceptent les coûts d'un manque perçu d'indépendance des auditeurs associé aux SNA fiscaux en retour des avantages potentiels tirés d'une augmentation de la qualité des rapports financiers liée aux SNA fiscaux. Notre analyse par sous‐périodes (2003 à 2006 par rapport à 2007 à 2011) montre que ce résultat est significatif seulement dans la deuxième période. L'évaluation différentielle que font les ECP du rapport coûts‐avantages des audits conjoints et de la prestation de SNA fiscaux entre les deux périodes porte à croire qu'il est nécessaire de mener des recherches additionnelles sur les années post‐SOX plus récentes.

Suggested Citation

  • Jean Bédard & Suzanne M. Paquette, 2021. "Audit Committee Financial Expertise, Litigation Risk, and Auditor‐Provided Tax Services†," Accounting Perspectives, John Wiley & Sons, vol. 20(1), pages 7-48, March.
    • Handle: RePEc:wly:accper:v:20:y:2021:i:1:p:7-48
    DOI: 10.1111/1911-3838.12236
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