The impact of joint provision of audit and tax services on the advice of tax professionals

Prior public policy research has questioned the impact of joint provision of audit and non-audit services by examining auditor behavior and audit quality. This study contributes to the public policy debate by examining the behavior of the non-audit service provider, specifically tax professionals. The results of an experiment provide the first evidence that joint provision of audit and tax services impacts the judgments of the tax professional and reduces the aggressiveness of tax advice provided by experienced tax professionals, consistent with ingroup behavioral theory. In addition, tax professionals’ assessments of uncertainty—the basis for financial statement reserve recognition—are relatively greater when their firm is providing joint audit and tax services. Tax uncertainty assessments mediate the relationship between service provision and tax aggressive advice. Collectively, this study informs the public policy debate by demonstrating that joint provision of audit and non-audit services impacts the non-audit service provided by the same firm and provides clarity on how public policy may decrease tax aggressive advice.