The impact of tax audits on tax avoidance levels: the moderating role of audit quality
Vol. 24, No. 2/2025 , p254..271
Author(s):
Sabrine Hamrouni and Ines Menchaoui
© 2025. This work is openly licensed via CC BY 4.0.
Keywords:
tax audits, tax avoidance, audit quality, Stakeholder theory, Tunisian context
Abstract:
Research Question: Does an audit cause companies to change their tax strategies, becoming less or more aggressive? Is this relationship more pronounced when audited by a Big Four firm?
Motivation: This study was inspired by Leung et al. (2019), who examined the impact of legal effects on tax avoidance. Similarly, we examine the impact of tax audits on tax avoidance. We follow the approach used by Ojala et al. (2023), who studied the tax aggressiveness of private firms and how it changes in response to the actions of tax authorities.
Idea: This study aims to examine the effect of tax audits on firm tax avoidance, with audit quality playing a moderating role.
Data: The sample consists of 34 non-financial Tunisian companies listed on the Tunisian Stock Exchange (TSE). The study includes a panel of 179 observations for 2014-2019.
Tools: The data were manually collected from the financial statements of the listed companies. We use a panel regression model to analyze the relationship between tax audits, audit quality, and the level of tax avoidance.
Findings: Our research shows a correlation between audited companies and their effective tax rates. It also suggests that being audited by a Big 4 firm and undergoing a tax audit reduces tax avoidance.
Contribution: Our study extends the existing literature on the effects of tax administration interventions on firms' tax behaviour by analyzing firms' tax strategies.
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http://online-cig.ase.ro/jcig/art/24_2_3.pdf
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