Audit assurance and tax enforcement: A comparative study of Central-Eastern European countries
Journal of Accounting in Emerging Economies
ISSN: 2042-1168
Article publication date: 2 October 2019
Issue publication date: 15 October 2019
Abstract
Purpose
The purpose of this paper is to examine the impact of audit assurance on tax enforcement, which is represented by whether firms have been visited by tax officials and, if so, the total number of inspections per fiscal year. The efficiency of tax administration is further examined by whether it becomes a binding constraint to a firm’s operations.
Design/methodology/approach
The sample consists of 18,746 firm-year observations from 28 transition and market-based economies in Central-Eastern Europe. The binary logit model, the Poisson model and the ordinal logit model are applied to test the hypotheses.
Findings
The empirical results show that, while audit assurance does not reduce the probability of being visited by tax officials (regardless of visit times) for the two country groups, firms with audited financial reports meet tax officials less often in market-based economies but not in transition economies. Furthermore, only in market-based economies does audit assurance reduce the probability that tax administration becomes a severe obstacle to firms’ operations.
Originality/value
This study addresses the relationship between tax administration and audit assurance in market-based and transition countries. One implication of the empirical findings is that audit assurance would add benefits to business environments when countries evolve from transition to market-based economies.
Keywords
Acknowledgements
The author would like to thank the editor and two anonymous reviewers for their valuable comments. Appreciation is also expressed to Gorm Kipperberg for very useful discussions on the econometric methods used in the study and to Joshua Wimpey from the World Bank for answers of the author’s many questions about the survey data and methods.
Citation
Zhang, D. (2019), "Audit assurance and tax enforcement: A comparative study of Central-Eastern European countries", Journal of Accounting in Emerging Economies, Vol. 9 No. 4, pp. 449-472. https://doi.org/10.1108/JAEE-10-2018-0113
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited