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The Economic Consequences of Tax Service Provider Sanctions: Evidence from KPMG's Deferred Prosecution Agreement

Year: 2015

Type: article

Abstract: ABSTRACT This study investigates the effect of KPMG's Deferred Prosecution Agreement (DPA) on the accounting firm's ability to sell auditor-provided tax services (APTS) and its clients' tax avoidance. We document that following the DPA, clients were more likely to discontinue or reduce purchasing APTS from KPMG relative to the other Big 4 accounting firms. However, we do not find any evidence of a change in tax avoidance among KPMG clients continuing to purchase APTS following the DPA relative to other Big 4 clients. Broadly, our findings highlight how elevated reporting standards and external monitoring impose significant negative economic consequences on the service providers subject to these sanctions. At the same time, it appears clients do not suffer any observable tax costs by continuing to engage a sanctioned tax service provider.

Source: Journal of the American Taxation Association

DOI: 10.2308/atax-51272

Authors: Andrew Finley, James Stekelberg

Institutions: Claremont McKenna College, University of Arizona, Colorado State University

Language: English

Topic: Corporate Taxation and Avoidance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

OpenAlex ID: W1908956721

FWCI: 4.417

Cites: 41

Cited by: 16

Related to: 10