Impeded Knowledge Sharing between Auditors and Tax Professionals and Audit Outcomes

The benefits and costs of auditor-provided tax services (APTS) have been and continue to be a concern of regulators and the academic community. Numerous archival studies suggest that knowledge sharing is one mechanism through which APTS affects audit quality because of the valuable information audit personnel get from tax professionals. Different priorities of auditors and tax professionals can impede knowledge sharing. To contribute to the ongoing conversation about the benefits and costs of APTS and investigate whether the presumed knowledge sharing observed in prior studies is the constant these studies suggest, with archival data, this study investigates whether prioritization of finding APTS opportunities by tax professionals can impede knowledge sharing and the effect of the impediments on audit outcomes. I find that impeded knowledge sharing between audit and tax professionals is more likely to occur in the audit offices where tax professionals prioritize pursuing APTS opportunities, and clients of audit offices more likely to experience impeded knowledge sharing are more likely to have tax-related misstatements. I also find potential knowledge-sharing impediments appear to affect clients’ decisions to purchase APTS. This study should be of interest to audit firms, client firms, and regulators because it suggests that the knowledge sharing presumed in prior studies is not the constant prior studies suggest. Knowledge sharing provides valuable information to audit personnel, while the benefits could be situationally limited, audit quality suffers as a result