The economic consequences of tax service provider sanctions: Evidence from KPMG’S deferred prosecution agreement

Andrew R. Finley, James Stekelberg

Research output: Contribution to journalArticle

2 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)57-78
Number of pages22
JournalJournal of the American Taxation Association
Volume38
Issue number1
DOIs
StatePublished - Mar 1 2016

Keywords

  • Auditor-provided tax services
  • Deferred prosecution agreements
  • Tax avoidance
  • Tax reporting standards

ASJC Scopus subject areas

  • Accounting
  • Finance

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