Tax Audit Quality: The Role Of Experience And Technology Readiness In A Digital World
Keywords:
Audit Quality, Tax Audits, Experience, Digitalisation, Technology ReadinessAbstract
Society is digitising at a rapid pace and tax authorities must keep up with significant changes in how companies administer their tax liabilities. Tax auditors must be able to achieve an efficient and effective audit quality regardless of the degrees to which digitisation and digitalisation have been implemented by the audited companies. Previous research shows a positive correlation between audit experience and audit quality. However, it is unclear whether more experience—which was most likely acquired in traditional audits of accounting systems with low levels of digitalisation—is also beneficial in a changing environment with more highly digitalised companies. We argue that more experienced tax auditors are only superior to less experienced auditors in this changing environment if they are sufficiently willing and equipped to use new technologies and more digitised data. We expect—and find—that experienced tax auditors with adequate technology readiness achieve a higher audit quality in detecting information technology (IT) risks than tax auditors with less experience and/or less technology readiness. Our results, however, also show that more experienced tax auditors do not perform better when detecting traditional risks (i.e. non-IT-related risks) than less experienced auditors. Overall, our results suggest that experience without the propensity to embrace and use new technologies and more digitised data might not be enough to achieve the required audit quality levels in the future. We therefore emphasise the importance of appropriate training (in order to adopt new ways of working and acquire competencies to understand new technologies) and the strategic composition of the tax authorities’ audit teams.
References
Abdolmohammadi, M., & Wright, A. (1987). An examination of the effects of experience and task complexity on audit judgments. The Accounting Review, 62(1), 1–13.
Alissa, W., Capkun, V., Jeanjean, T., & Suca, N. (2014). An empirical investigation of the impact of audit and auditor characteristics on auditor performance. Accounting, Organizations & Society, 39(7), 495–510. https://doi.org/10.1016/j.aos.2014.06.003
Allingham, M. G., & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1(3–4), 323–388. https://doi.org/10.1016/0047-2727(72)90010-2
Anderson, B. H. & Maletta, M. (1994). Auditor attendance to negative and positive information: The effect of experience-related differences. Behavioral Research in Accounting, 6, 1–20.
Aobdia, D. (2019). Do practitioner assessments agree with academic proxies for audit quality? Evidence from PCAOB and internal inspections. Journal of Accounting and Economics, 67(1), 144–174. https://doi.org/10.1016/j.jacceco.2018.09.001
Balsam, S., Krishnan, J., & Yang, J. S. (2003). Auditor industry specialization and earnings quality. Auditing: A Journal of Practice & Theory, 22(2), 71–97. https://doi.org/10.2308/aud.2003.22.2.71
Becker, G. S. (1968). Crime and punishment: An economic approach. Journal of Political Economy, 76(2), 169–217.
Bedard, J. C., & Biggs, S. F. (1991). Pattern recognition, hypotheses generation, and auditor performance in an analytical task. The Accounting Review, 66(3), 622–642.
Bentley, D. (2021). Tax officer 2030: The exercise of discretion and artificial intelligence (Working paper). https://www.researchgate.net/publication/356507699_Tax_Officer_2030_The_Exercise_of_Discretion_and_Artificial_Intelligence
Bierstaker, J. L., Burnaby, P., & Thibodeau, J. (2001). The impact of information technology on the audit process: An assessment of the state of the art and implications for the future. Managerial Auditing Journal, 16(3), 159–164. https://doi.org/10.1108/02686900110385489
Bonner, S. E. (1990). Experience effects in auditing: The role of task-specific knowledge. The Accounting Review, 65(1), 72–92.
Bonner, S. E., & Lewis, B. L. (1990). Determinants of auditor expertise. Journal of Accounting Research, 28(Supplement), 1–20. https://doi.org/10.2307/2491243
Braithwaite, V. (2007). Responsive regulation and taxation: Introduction. Law & Policy, 29(1), 3–10. https://doi.org/10.1111/j.1467-9930.2007.00242.x
Brewster, B. E., Johanns, A. J., Peecher, M. E., & Solomon, I. (2021). Do stronger wise‐thinking dispositions facilitate auditors’ objective evaluation of evidence when assessing and addressing fraud risk? Contemporary Accounting Research, 38(3), 1679–1711. https://doi.org/10.1111/1911-3846.12684
Brivot, M., Roussy, M., & Mayer, M. (2018). Conventions of audit quality: The perspective of public and private company audit partners. Auditing: A Journal of Practice & Theory, 37(2), 51–71. https://doi.org/10.2308/ajpt-51772
Cahan, S. F., & Sun, J. (2015). The effect of audit experience on audit fees and audit quality. Journal of Accounting, Auditing & Finance, 30(1), 78–100. https://doi.org/10.1177/0148558X14544503
Cao, T., Duh, R-R., Tan, H-T., & Xu, T. (2021). Enhancing auditors’ reliance on data analytics under inspection risk using fixed and growth mindsets. The Accounting Review, 97(3), 131–153. https://doi.org/10.2308/TAR-2020-0457
Curtis, M. B., Jenkins, J. G., Bedard, J. C., & Deis D. R. (2009). Auditors’ training and proficiency in information systems: A research synthesis. Journal of Information Systems, 23(1), 79–96. https://doi.org/10.2308/jis.2009.23.1.79
DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002
Drogalas, G., Ioannis, S., Dimitra, K., & Ioannis, D. (2015). Tax audit effectiveness in Greek firms: Tax auditors’ perceptions. Journal of Accounting and Taxation, 7(7), 123–130. https://doi.org/10.5897/JAT2015.0186
Earley, C. E. (2002). The differential use of information by experienced and novice auditors in the performance of ill‐structured audit tasks. Contemporary Accounting Research, 19(4), 595–614. https://doi.org/10.1506/XWDP-PHRH-Q3J9-XLXL
Eilifsen, A., Kinserdal, F., Messier Jr., W. F., & McKee, T. E. (2020). An exploratory study into the use of audit data analytics on audit engagements. Accounting Horizons, 34(4), 75–103. https://doi.org/10.2308/HORIZONS-19-121
Francis, J. R. (2011). A framework for understanding and researching audit quality. Auditing: A Journal of Practice & Theory, 30(2), 125–152. https://doi.org/10.2308/ajpt-50006
Goldman, N. C., Harris, M. K., & Omer, T. C. (2022). Does task-specific knowledge improve audit quality: Evidence from audits of income tax accounts. Accounting, Organizations and Society, 99, 1–22. https://doi.org/10.1016/j.aos.2021.101320
Hair Jr., J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1998). Multivariate data analysis (5th ed.). Prentice Hall.
Han, S., Razaee, Z., Xue, L., & Zhang, J. H. (2016). The association between information technology investments and audit risk. Journal of Information Systems, 30(1), 93–116. https://doi.org/10.2308/isys-51317
Haynes, C. M., Jenkins, J. G., & Nutt, S. R. (1998). The relationship between client advocacy and audit experience: An exploratory analysis. Auditing: A Journal of Practice & Theory, 17(2), 88–104.
International Auditing and Assurance Standards Board. (2019, December). International standard on auditing 315 (revised December 2019): ISA (revised 2019) and conforming and consequential amendments to other international standards arising from ISA 315 (revised 2019): Final pronouncement: December 2019. International Auditing and Assurance Standards Board. https://www.iaasb.org/publications/isa-315-revised-2019-identifying-and-assessing-risks-material-misstatement
Kaplan, S. E., O’Donnell, E. F., & Arel, B. M. (2008). The influence of auditor experience on the persuasiveness of information provided by management. Auditing: A Journal of Practice & Theory, 27(1), 67–83. https://doi.org/10.2308/aud.2008.27.1.67
Kirchler, E. (2007). The economic psychology of tax behaviour. Cambridge University Press. https://doi.org/10.1017/CBO9780511628238
Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The “slippery slope” framework. Journal of Economic Psychology, 29(2), 210–225. https://doi.org/10.1016/j.joep.2007.05.004
Knapp, C. A. & Knapp, M. C. (2001). The effects of experience and explicit fraud risk assessment in detecting fraud with analytical procedures. Accounting, Organizations and Society, 26, 25–37. https://doi.org/10.1016/S0361-3682(00)00005-2
Knechel, W. R., Krishnan, G. V., Pevzner, M., Shefchik, L. B., & Velury, U. K. (2013). Audit quality: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 32(1), 385–421. https://doi.org/10.2308/ajpt-50350
Koreff, J., & Perreault, S. (2023). Is sophistication always better? Can perceived data analytic tool sophistication lead to biased judgments. Journal of Emerging Technologies in Accounting, 20(1), 91–110. https://doi.org/10.2308/JETA-2022-010
Lehmann, C. M., & Norman, C. S. (2006). The effects of experience on complex problem representation and judgment in auditing: An experimental investigation. Behavioral Research in Accounting, 18(1), 65–83. https://doi.org/10.2308/bria.2006.18.1.65
Libby, R., & Frederick, D. M. (1990). Experience and the ability to explain audit findings. Journal of Accounting Research, 28(2), 348–367. https://doi.org/10.2307/2491154
Low, K.-Y. (2004). The effects of industry specialization on audit risk assessments and audit-planning decisions. The Accounting Review, 79(1), 201–219.
Marchant, G. (1989). Analogical reasoning and hypothesis generation in auditing. The Accounting Review, 64(3), 500–513.
Messier Jr., W. F., & Tubbs, R. M. (1994). Recency effects in belief revision: The impact of audit experience and the review process. Auditing: A Journal of Practice & Theory, 13(1), 57–72.
Moeckel, C. (1990). The effect of experience on auditors’ memory errors. Journal of Accounting Research, 28(2), 368–387. https://doi.org/10.2307/2491155
Moroney, R., & Carey, P. (2011). Industry- versus task-based experience and auditor performance. Auditing: A Journal of Practice & Theory, 30(2), 1–18. https://doi.org/10.2308/ajpt-10060
Muehlbacher, S., Kirchler, E., & Schwarzenberger, H. (2011). Voluntary versus enforced tax compliance: Empirical evidence for the “slippery slope” framework. European Journal of Law and Economics, 32, 89–97. https://doi.org/10.1007/s10657-011-9236-9
Nelson, M. W. (2009). A model and literature review of professional skepticism in auditing. Auditing: A Journal of Practice & Theory, 28(2), 1–34. https://doi.org/10.2308/aud.2009.28.2.1
O’Donnell, E., Koch, B., & Boone, J. (2005). The influence of domain knowledge and task complexity on tax professionals’ compliance recommendations. Accounting, Organizations and Society, 30(2), 145–165. https://doi.org/10.1016/j.aos.2003.12.003
Organisation for Economic Co-operation and Development. (2006). Information note: Strengthening tax audit capabilities: General principles and approaches. Organisation for Economic Co-operation and Development. https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/tax-administration/strengthening-tax-audit-capabilities-general-principles-and-approaches.pdf
Organisation for Economic Co-operation and Development. (2017). The changing tax compliance environment and the role of audit. Organisation for Economic Co-operation and Development. https://doi.org/10.1787/9789264282186-en
Organisation for Economic Co-operation and Development. (2019). Tax administration 2019: Comparative information on OECD and other advanced and emerging economies. Organisation for Economic Co-operation and Development. https://doi.org/10.1787/74d162b6-en
Owhoso, V. E., Messier Jr., W. F., & Lynch Jr., J. G. (2002). Error detection by industry‐specialized teams during sequential audit review. Journal of Accounting Research, 40(3), 883–900. https://doi.org/10.1111/1475-679X.00075
Pan, G., & Seow, P.-S. (2016). Preparing accounting graduates for digital revolution: A critical review of information technology competencies and skills development. Journal of Education for Business, 91(3), 166–175. https://doi.org/10.1080/08832323.2016.1145622
Parasuraman, A., & Colby, C. L. (2015). An updated and streamlined technology readiness index: TRI 2.0. Journal of Service Research, 18(1), 59–74. https://doi.org/10.1177/1094670514539730
Prinz, A., Muehlbacher, S., & Kirchler, E. (2014). The slippery slope framework on tax compliance: An attempt to formalization. Journal of Economic Psychology, 40, 20–34. https://doi.org/10.1016/j.joep.2013.04.004
Public Company Accounting Oversight Board. (n.d.). Auditing Standards of the Public Company Accounting Oversights Board. https://pcaobus.org/standards/auditing/documents/auditing_standards_audits_fyb_after_june_16_2024_before_fyb_december-14-2024.pdf
Quadackers, L., Groot, T., & Wright, A. (2014). Auditors’ professional skepticism: Neutrality versus presumptive doubt. Contemporary Accounting Research, 31(3), 639–657. https://doi.org/10.1111/1911-3846.12052
Reheul, A., Van Caneghem, T., Van den Bogaerd, M., & Verbruggen, S. (2017). Auditor gender, experience and reporting in nonprofit organizations. Managerial Auditing Journal, 32(6), 550–577. https://doi.org/10.1108/MAJ-01-2016-1296
Ríos-Figueroa, C. B., & Cardona, R. J. (2013). Does experience affect auditors’ professional judgment? Evidence from Puerto Rico. Accounting & Taxation, 5(2), 13–32.
Shelton, S. W. (1999). The effect of experience on the use of irrelevant evidence in auditor judgement. The Accounting Review, 74(2), 217–224. https://doi.org/10.2308/accr.1999.74.2.217
Smith, J. F., & Kida, T. (1991). Heuristics and biases: Expertise and task realism in auditing. Psychological Bulletin, 109(3), 472–489. https://doi.org/10.1037/0033-2909.109.3.472
Stoel, D., Havelka, D., & Merhout, J. W. (2012). An analysis of attributes that impact information technology audit quality: A study of IT and financial audit practitioners. International Journal of Accounting Information Systems, 13(1), 60–79. https://doi.org/10.1016/j.accinf.2011.11.001
Trotman, K. T., & Wright, A. (1996). Recency effects: Task complexity, decision mode, and task-specific experience. Behavioral Research in Accounting, 8, 175–193.
van Nieuw Amerongen, C. M. (2007). Auditors’ performance in risk and control judgments: An empirical study [Doctoral dissertation,Vrije Universiteit Amsterdam]. VU Amsterdam. https://research.vu.nl/en/publications/auditors-performance-in-risk-and-control-judgments-an-empirical-s
Wang, L., & Alam, P. (2007). Information technology capability: Firm valuation, earnings uncertainty, and forecast accuracy. Journal of Information Systems, 21(2), 27–48. https://doi.org/10.2308/jis.2007.21.2.27
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Maarten A. Siglé, Stephan Muehlbacher, Lisette E. C. J. M. van der Hel, Erich Kirchler
This work is licensed under a Creative Commons Attribution 4.0 International License.
Our open access status means that authors retain the copyright of their work. However, all papers published in JOTA are done so under a Creative Commons Attribution 4.0 International license (CC BY). This means that others can share and/or adapt your work without your permission as long as they follow certain rules, including attributing your work correctly.
You can learn more about this on our Open Access, Licensing, and Copyright Policies page.
