The effect of audit firm size and audit fees on tax reconciliation informativeness in private Belgian firms

Abstract

Using multiple regression model, this study investigates the relationship between audit firms’ characteristics and audit quality in Belgium, using quantitative data provided by Bel-first from Bureau Van Dijk that encompasses 8982 private companies between 2009 and 2014. The data analysis is performed using SPSS (Statistical Package for the Social Sciences) program. The findings suggest with strong evidence that the audit firm’s characteristic, firm size (BIG4 or not) is positively and significantly related to audit quality (tax reconciliation informativeness) indicating that a private company that is audited by a BIG4 audit firm tend to be more transparent and disclose all the information regarding differences between book and tax results. In contrast we didn’t find any significant evidence supporting the existence of any relation between audit quality and audit fees. After performing several sensitivity analysis tests this results remain robust across different models, only the robustness test where we investigated the impact of the presence versus the absence of non audit services fees reveals that BIG4 remain positively related to audit quality as it has a negative effect on our dependent variable ADIFF in the absence of non audit fees , what we didn’t expect is that in the presence of non audit fees the impact of the audit company’s size is not known or inconclusive on the basis of its type as it has an insignificant relation with tax reconciliation informativeness quality. It is important to note that in this research paper audit quality and tax reconciliation informativeness are used as synonyms. The study is closed off with the presentation of its limitation and future research opportunities that we suggested based on our findings.