The Effect of Tax Aggressiveness and Corporate Governance on Audit Fees: Evidences from Brazil

Antonio Lopo Martinez, Rubem Cardoso Lessa


The study investigates the relationship between tax avoidance practices and audit fees. The literature has reported various factors that determine the amount of audit fees, among them the possible risks faced by the audit firm. This article focuses on the effect of tax avoidance by Brazilian companies on the fees charged by auditors. Based on audit fee data for the period from 2009 to 2011 and book-tax differences as an empirical proxy for tax avoidance, we find that tax avoidance practices are positively related to audit fees, i.e., companies that are more aggressive in their tax planning tend to be penalized by having to pay higher fees to their auditors. However, in the contextualized analysis, the results indicate that good corporate governance practices tend to minimize this relationship, attenuating the incremental effects on the remuneration of audit firms. This study also evidences the risk perception of independent auditors and identifies interactions of tax planning, independent auditing and corporate governance not usually perceived by the market. 

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