The impact of tax uncertainty and joint provision of audit services on the aggressiveness of tax advice

Abstract

We examine the impact of joint provision of audit and tax services on the aggressiveness of tax advice provided by experienced tax professionals. We find evidence that joint provision of audit and tax services are negatively associated with the aggressiveness of tax advice. Analysis suggests that tax professionals weigh the influence of tax uncertainty more in the presence of joint service provision, when determining the aggressiveness of tax advice. Additional evidence suggests that tax professionals are cognizant that providing aggressive tax advice in the presence of tax uncertainty may have negative impacts on the financial statement audit. Though tax professionals do not anticipate a difference in scrutiny or objectivity when the auditor is in their firm relative to when the auditor is from a different firm, they do demonstrate greater concern for the impact of aggressive tax advice on the audit when the auditor is in their firm. Collectively, our evidence provides evidence that joint provision of audit and non-audit services can have a significant impact on the provision of non-audit service providers in the same firm.