Why do audit clients voluntarily disclose the compliance and planning components of auditor provided tax services?

Abstract

Criticisms of audit firms marketing and devising tax avoidance strategies for their audit clients have led to calls from regulators, investors, and proxy advisors for more detailed disclosures on the composition of tax non-audit services (NAS). Using a hand-collected dataset, we examine the determinants of audit clients’ voluntary bifurcation of total tax NAS fees into the tax planning and compliance components, and the effect of these voluntary disclosures on firm value. We find that firms with higher levels of tax NAS are more likely to provide this disclosure, as well as firms that engage in higher levels of tax avoidance and have accounting experts serve on the audit committee. Using tex..