Audit Quality and Tax Avoidance in Emerging Economies
Evidence from Banking Sector in Bangladesh
DOI:
https://doi.org/10.20525/ijfbs.v14i1.3919Keywords:
Audit Fee, Audit Quality, Audit Tenure, Big4 Audit Firm, KAM, Tax Avoidance, Effective Tax RateAbstract
This study examines the relationship between audit quality and tax avoidance practices among listed banking companies in Bangladesh. The investigation utilized secondary data from the published annual reports of 36 listed banks on the Dhaka Stock Exchange, covering the period from 2018 to 2022. Therefore, the final dataset consists of 170 firm-year observations. In this research, audit quality was measured using four different variables: audit fees, audit tenure, the presence of a Big4 audit firm, and the disclosure of Key Audit Matters (KAM). The findings indicate that both the audit fees and KAM disclosure have a statistically significant positive relationship with tax avoidance. Conversely, while the presence of a Big4 auditor and audit tenure also demonstrate a positive relationship with tax avoidance, but this relation is not statistically significant. These findings suggest that rigorous auditing practices are essential for maintaining tax compliance within financial systems. Conducting audits with integrity, thoroughness, and adherence to professional standards can significantly impact tax compliance. Furthermore, the results highlight the need for tax authorities to identify and close the tax loopholes that companies exploit for tax avoidance. Promoting collaboration between regulatory bodies, tax authorities, and auditing firms is necessary to reduce tax avoidance activities by the firms.
Downloads
References
Abdul Wahab, E. A., Ariff, A. M., Madah Marzuki, M., & Mohd Sanusi, Z. (2017). Political Connections, Corporate Governance, and Tax Aggressiveness in Malaysia. Asian Review of Accounting, 25(3), 424–451. https://doi.org/10.1108/ARA-05-2016-0053
Amalia, D., & Ferdiansyah, S. (2019). Do Political Connection, Executive Character, and Audit Quality Affect the Tax Avoidance Practice? Evidence in Indonesia. Sebelas Maret Business Review, 4(2), 93–94. https://doi.org/10.2991/icaess-19.2019.5
Ardillah, K., & Prasetyo, C. A. (2021). Executive Compensation, Executive Character, Audit Committee, and Audit Quality on Tax Avoidance. Akuntabilitas: Jurnal Ilmu Akuntansi, 14(2), 169–186. https://doi.org/10.15408/akt.v14i2.22114
Bangladesh Securities and Exchange Commission. (2018). Gazette notification on financial reporting and disclosure, Statutory Law, 20 June. https://sec.gov.bd/slaws/Gazette_Notification_on_Financial_Reporting_and_Disclosure_08.08.2018.pdf
Bédard, J., Gonthier-Besacier, N., & Schatt, A. (2019). Consequences of Expanded Audit Reports: Evidence from the Justifications of Assessments in France. A Journal of Practice & Theory, 38(3), 23–45. https://doi.org/10.2308/ajpt-52339
Cai, H., & Liu, Q. (2009). Competition and Corporate Tax Avoidance: Evidence From Chinese Industrial Firms. The Economic Journal, 119(537), 764–795. https://doi.org/10.1111/j.1468-0297.2009.02217.x
Center for Policy Dialogue (CPD). (2023). Taking measures against tax evasion can significantly raise public revenue. CPD. https://cpd.org.bd/taking-measures-against-tax-evasion-can-significantly-raise-public-revenue/
Dyreng, S., & Hanlon, M. (2023). Tax Avoidance and Multinational Firm Behavior. SSRN Electronic Journal, 6(1), 32. https://doi.org/10.2139/ssrn.4359219
Eksandy, A. (2017). Pengaruh Komisaris Independen, Komite Audit, Dan Kualitas Audit Terhadap Penghindaran Pajak (Tax Avoidance). Competitive Journal Akuntansi Dan Kenangan, 1(1), 1–20. http://dx.doi.org/10.31000/competitive.v1i1.96
Gaaya, S., Lakhal, N., & Lakhal, F. (2017). Does family ownership reduce corporate tax avoidance? The moderating effect of audit quality. Managerial Auditing Journal, 32(7), 731–744. https://doi.org/10.1108/MAJ-02-2017-1530
Gunawan, Y., Christy, Y., Tin, S., & Jonathan, L. (2021). The Influence of Independent Board of Commissioners, Audit Committee, and Audit Quality on Tax Avoidance. Economic, Business, Management, and Accounting, 18, 42–49. https://doi.org/10.30651/blc.v18i1.6495
Hu, N. (2018). Tax Avoidance, Property Rights and Audit Fees. American Journal of Industrial and Business Management, 8(3), 461–472. https://doi.org/10.4236/ajibm.2018.83030
Jihene, F., & Moez, D. (2019). The Moderating Effect of Audit Quality on CEO Compensation and Tax Avoidance: Evidence from Tunisian Context. International Journal of Economics and Financial Issues, 9(1), 131–137. https://doi.org/10.32479/ijefi.7355
Kanagaretnam, K., Lee, J., Lim, C. Y., & Lobo, G. J. (2016). Relation between Auditor Quality and Tax Aggressiveness: Implications of Cross-Country Institutional Differences. Auditing: A Journal of Practice & Theory, 35(4), 105–135. https://doi.org/10.2308/ajpt-51417
Kitipong, W., Ekasingh, E., & Sarapaivanich, N. (2020). A Comprehensive Study of the New Audit Report with Key Audit Matters: What Have We Learned from Our First Implementation. Securities and Exchange Commission, Thailand. https://www.sec.or.th/TH/Documents/Seminars/seminar-symposium-06-fullpaper.pdf
Kitiwong, W., & Sarapaivanich, N. (2020). Consequences of the implementation of expanded audit reports with key audit matters (KAMs) on audit quality. Managerial Auditing Journal, 35(8), 1095–1119. https://doi.org/10.1108/MAJ-09-2019-2410
Klueber, J., Gold, A., & Pott, C. (2018). Do key audit matters impact financial reporting behavior?. SSRN. https://doi.org/10.1111/ijau.12190
Kuncoro, B. W., & Surjandari, D. A. (2023). The Effect of Audit Fees, Auditor Specialization, Auditor Tenure on Tax Avoidance with Audit Opinion as a Moderating Variable. Journal of Economics, Finance and Accounting Studies, 5(1), 201–208. https://doi.org/10.32996/jefas.2023.5.1.16
Lelekaei, S. T., & Nikkar, B. (2018). The Study of Relationship Between Corporate Governance, Auditing Quality, and Tax Avoidance in Listed Companies of Tehran Stock Exchange. Journal of Accounting Knowledge and Management Auditing, 6(24), 41–56.
Lestari, N., & Nedya, S. (2019). The Effect of Audit Quality on Tax Avoidance. In International Conference on Applied Science and Technology 2019-Social Sciences Track (iCASTSS 2019), 72-76). https://doi.org/10.2991/icastss-19.2019.69
Li, H., Hay, D., & Lau, D. (2019). Assessing the impact of the new auditor’s report. Pacific Accounting Review, 31(1), 110–132. https://doi.org/10.1108/PAR-02-2018-0011
Martinez, A. L., & Lessa, R. C. (2013). The Effect of Tax Aggressiveness and Corporate Governance on Audit Fees: Evidences From Brazil. Journal of Management Research, 6(1), 96–108. https://doi.org/10.5296/jmr.v6i1.4812
Madah Marzuki, M., & Muhammad Al-Amin, M. S. (2021). The effect of audit fees, audit quality, and board ownership on tax aggressiveness: Evidence from Thailand. Asian Review of Accounting, 29(5), 617–636. https://doi.org/10.1108/ARA-11-2020-0179
Monika, C. M., & Noviari, N. (2021). The Effects of Financial Distress, Capital Intensity, And Audit Quality on Tax Avoidance. American Journal of Humanities and Social Sciences Research, 6, 282–287.
Novrilia, H., Arza, F. I., & Sari, V. F. (2019). Effect of Audit Fee, Audit Tenure, and CAP Reputation on Audit Quality. Accounting Exploration Journal, 1(1), 256–276. https://doi.org/10.24036/jea.v1i1.73
Paramita, I. D. A. D. P., & Fuad, F. (2023). The Effects of Audit Fees, Audit Quality and Ownership Structures on Tax Aggressiveness: Evidence from Manufacturing Companies in Indonesia. Jurnal Bisnis Strategi, 32(1), 1–14. https://doi.org/10.14710/jbs.32.1.1-14
Rahaman, M. M., Hossain, M. M., & Bhuiyan, M. B. U. (2023). Disclosure of key audit matters (KAMs) in financial reporting: Evidence from an emerging economy. Journal of Accounting in Emerging Economies, 13(3), 666–702. https://doi.org/10.1108/JAEE-11-2021-0355
Reid, L. C., Carcello, J. V., Li, C., Neal, T. L., & Francis, J. R. (2019). Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence From The United Kingdom. Contemporary Accounting Research, 36(3), 1501–1539. https://doi.org/10.1111/1911-3846.12486
Riguen, R., Salhi, B., & Jarboui, A. (2021). The impact of audit characteristics on corporate tax avoidance: The moderating role of gender diversity. Scientific Annals of Economics and Business, 68(1), 97–114. https://doi.org/10.47743/saeb-2021-0019
Rizqia, A., & Lastiati, A. (2021). Audit Quality and Tax Avoidance: The Role of Independent Commissioners and Audit Committee's Financial Expertise. Journal of Accounting Auditing and Business, 4(1), 14–31. https://doi.org/10.47743/saeb-2021-0002
Salehi, M., Tarighi, H., & Shahri, T. A. (2020). The effect of auditor characteristics on tax avoidance of Iranian companies. Journal of Asian Business and Economic Studies, 27(2), 119–134. https://doi.org/10.1108/JABES-11-2018-0100
Sandy, S., & Lukviarman, N. (2015). Effect of corporate governance on tax avoidance: Empirical studies on manufacturing companies. Indonesian Journal of Accounting & Auditing, 19(2), 85–98. https://doi.org/10.20885/jaai.vol19.iss2.art1
Sharif, M., & Khan, S. (2024). Determinants of Effective Tax Rate: Empirical Evidence from Selected Manufacturing Industries in Bangladesh. Accounting Analysis Journal, 12(3), 177–189. https://doi.org/10.15294/aaj.v12i3.70826
Suttipun, M. (2021). Impact of key audit matters (KAMs) reporting on audit quality: Evidence from Thailand. Journal of Applied Accounting Research, 22(5), 869–882. https://doi.org/10.1108/JAAR-10-2020-0210
Suttipun, M. (2022). External auditor and KAMs reporting in alternative capital market of Thailand. Meditari Accountancy Research, 30(1), 74–93. https://doi.org/10.1108/MEDAR-04-2020-0850
Wulandari, P., & Sudarma, M. (2022). The influence of ownership structure, leverage, profitability, company size, and audit quality on tax avoidance in Indonesia. Paper presented at Brawijaya International Conference on Economics, Business and Finance 2021 (BICEBF 2021), 228–234. https://doi.org/10.2991/aebmr.k.220128.030
Wuttichindanon, S., & Issarawornrawanich, P. (2020). Determining factors of key audit matter disclosure in Thailand. Pacific Accounting Review, 32(4), 563–584. https://doi.org/10.1108/PAR-01-2020-0004
Zain, R. P., Harsa Sumarta, N., & Gandhi Amidjaya, P. (2022). Auditor characteristics on tax avoidance by non-financial companies: Evidence from the Indonesia Stock Exchange. Jurnal Akuntansi & Auditing Indonesia, 203–210. https://doi.org/10.20885/jaai.vol26.iss2.art9.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Mohammad Moniruzzaman, Md Jamil Sharif, Akif Mohammad Alam
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors contributing to IJFBS agree to publish their articles under the Creative Commons Attribution- 4.0 license, allowing third parties to share their work (copy, distribute, transmit) and to adapt it, under the condition that the authors are given credit, that the work is not used for commercial purposes, and that in the event of reuse or distribution, the terms of this license are made clear. Authors retain copyright of their work, with first publication rights granted to IJFBS. However, authors are required to transfer copyrights associated with commercial use to the Publisher. The authors agree to the terms of this Copyright Notice, which will apply to this submission if and when it is published by this journal
Submission of an article implies that the work described has not been published previously( except in the form of an abstract or as part of a published lecture or academic thesis), that it is not under consideration for publication elsewhere, that its publication is approved by all authors and tacitly or explicitly by the responsible authorities where the work was carried out, and that, if accepted, it will not be published elsewhere in the same form, in English or in any other languages, without the written consent of the Publisher. The Editors reserve the right to edit or otherwise alter all contributions, but authors will receive proofs for approval before publication.
