7 / 372
臺大管理論叢
第
26
卷第
2
期
7
and audit quality. But Cai and Xian (2007), using 2001-2004 A-share listed Chinese
companies, found that auditor industry expertise cannot improve audit quality because of
poor auditor independence. The mixed results from the two prior studies may be due to
different samples and research designs, but one possible explanation is that the association
between auditor industry expertise and audit quality is affected by the degree of market
competition and auditor independence. Since the competition in China’s audit market is
fiercely high and the demand for audit quality is relative low, audit firms need to compete on
price or compromise independence to retain clients. The positive effect of industry expertise
on audit quality is offset by poor auditor independence.
2.3 Auditor Industry Expertise and Clients’ Tax Avoidance
Auditor industry expertise may constrain or encourage clients’ tax avoidance activity.
From the audit perspective, industry experts are more likely to find and deter tax avoidance
activity by requiring adjustments. Prior research suggests that tax expense is difficult for
auditors to evaluate because of the complexity of the tax laws and that the substantial
judgment that must be exercised in estimating the various components of tax expense
(Dhaliwal, Gleason, and Mills, 2004). Industry experts can use their industry-specific
knowledge and experience to improve professional judgment and the efficiency of collecting
audit evidence. Therefore, compared to non-industry experts, industry experts are more
likely to find clients’ tax avoidance activity and require adjustments to limit it based on risk
control principle. This leads to our first hypothesis:
H1: Ceteris paribus, auditor industry expertise is negatively associated with clients’ tax
avoidance.
From the tax perspective, industry expert is associated with greater tax avoidance
because experts have a better understanding of industry-specific opportunities for tax
planning and may use their expertise to develop tax strategies that benefit clients. While
some research suggests that the use of auditor-provided tax services declined after the
passage of the Sarbanes-Oxley Act (Maydew and Shackelford, 2007), Cook and Omer
(2010) find that approximately two-thirds of the corporations in their sample continue to
purchase at least a portion of their tax consulting services from their external audit firm.
Thus, for many clients, their tax avoidance activity is directly affected by tax consultants and
indirectly affected by auditors. McGuire, Omer, and Wang (2012) find that both external
audit firm’s tax expertise and overall expertise are positively associated with its clients’ tax