Tax avoidance and audit report lag in South Africa: the moderating effect of auditor type
| DOI | https://doi.org/10.1108/JFC-09-2020-0197 |
| Published date | 25 January 2021 |
| Date | 25 January 2021 |
| Pages | 732-740 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Hela Gontara,Hichem Khlif |
Tax avoidance and audit
report lag in South Africa: the
moderating effect of auditor type
Hela Gontara and Hichem Khlif
Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia
Abstract
Purpose –The purpose of this paper is to examine theassociation between audit report lag (ARL) and tax
avoidanceand test whether external auditor type affectsthis relationship.
Design/methodology/approach –ARL is measured as the number of days from fiscal year-end to the
date of the auditor’sreport, while tax avoidance is measured using effectivetax rate.
Findings –Using a sample of 45 South African companies over the period of 2010–2013, the authors
document that ARL is positivelyassociated with tax avoidance and this relationship remains positivewhen
the companyis audited by a Big-4 audit firm and not significant when the companyis audited by a non-Big-4.
Originality/value –The authors’findingshave important implications forauditors aiming to reduce audit
risk as they may consider the impact of tax avoidance and pay more attention to companies with a high
degree of tax avoidance.
Keywords South Africa, ARL, Effective tax rate, Auditor type
Paper type Research paper
1. Introduction
Both audit report lag (ARL) and tax avoidancehave attracted a great deal of attention in the
recent accounting literature. Audit delayis a major and decisive component of the delay in
the disclosure of financial and accounting information, and it is a means of observing the
efficiency of the audit process (Givoly and Palmon,1982). In this regard, several researchers
have studied the determinants of audit delays in different countries and different contexts
(Ashton et al.,1987;Ettredgeet al.,2006;Kaaroud et al.,2020;Khlifand Samaha, 2014;Oussii
and Boulila Taktak,2018).
A neglected aspect in this stream of research is to investigate whether tax avoidance
affects ARL. For instance, Crabtre and Kubick (2014) have examined the relationship
between tax avoidance and the timeliness of annual earnings announcements. They have
documented that there is a positive association between both variables in the US setting.
Aside from this study that has dealt with tax avoidance and timely disclosure, we are not
aware about any empirical paper that has investigated the relationship between tax
avoidance and ARL in developing and emerging economies. Accordingly, we try to fill the
gap in accounting literature by examining this relationship in an African setting, namely,
South Africa, characterized by its economic growth and the development of its financial
market. Furthermore,we examine whether auditor type moderates such an association.
ARL is defined as the number of days from fiscal year-end to the date of the auditor’s
report, while tax avoidance (effective tax rate) is measured as total income tax expense
divided by pretax book income. It is an inverse function of effective tax rate (Gaaya et al.,
2017). Based on a sample of 45 companies over the 2010–2013, we find a positive(negative)
association between tax avoidance (effective tax rate) and ARL. These results suggest that
JFC
28,3
732
Journalof Financial Crime
Vol.28 No. 3, 2021
pp. 732-740
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2020-0197
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