Tax Audit Quality: The Role Of Experience And Technology Readiness In A Digital World

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.