Study: Tax Work Doesn?t Compromise Auditor Objectivity

It’s a done deal now, but those who question whether the Securities and Exchange Commission should have permitted accountants to offer tax advice to their audit clients might be interested in a study by a Texas accounting professor.

William Kinney, an accounting professor at the University of Texas’ McCombs School of Business, found that companies who used their auditors to also provide tax services were less likely, on average, to issue earnings restatements.

Kinney based his study’s findings on an analysis of the earnings of 825 major companies. Of those, 382 restated earnings, while 443 are from matched firms which did not restate results. Restatements are considered a fairly accurate measure of financial reporting failures.

“Our data doesn't prove a lack of conflict (of interest) –it just shows that, for our sample anyway, more tax services fees are associated with a lower likelihood of subsequent restatement of financials,” Kinney told Electronic Accountant.

Kinney did suggest that the SEC authorize further research to see if it can be proven that having an audit firm do tax work for a client actually “reduces the incidence of restatements.”

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