Abstract
This paper examines whether audit client importance affects book-tax differences,
a measure that can potentially reflect discretion in audit client’s action in financial
and tax reporting choices. We use Taiwan data as client importance can be measured
not only at the firm level but the individual partner level as well as the audit team
level. The multiple regression analyses show that client importance is positively
correlated with the magnitude of book-tax difference under each of our client
importance measures, suggesting that auditors compromise reporting quality by
allowing economically important clients to choose relatively more opportunistically
reporting practices. As a result, book-tax differences are larger for these clients.
JEL classification numbers: M41, M42
Keywords: Audit client importance, Audit quality, Financial reporting quality,
Book-tax differences.
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