Auditors' Opinions and Tax Aggressiveness in Brazilian Companies

Abstract

This study delves into the intricate relationship between independent auditor opinions and corporate tax aggressiveness. We investigate whether the characteristics of auditor opinions, such as the presence of caveats, length, readability, and verbal tone, signal a company's tendency to engage in aggressive tax practices. Utilizing a quantitative approach, we employed a multiple linear regression model on a dataset of 1,271 observations from companies listed on the B3 stock exchange between 2017 and 2022. Tax aggressiveness was measured using established proxies like book-tax differences (BTD), effective tax rate (ETR), and tax rate on value added (TTVA). Our findings reveal a lack of significant correlation between the informational content of auditor opinions and corporate tax aggressiveness. Contrary to expectations, characteristics such as caveats, length, readability, and verbal tone did not significantly signal corporate tax strategies. This suggests that while auditor opinions are vital for financial reporting and corporate governance, their ability to indicate tax practices might be limited or indirect. These insights add to the discourse on corporate governance and tax compliance, promoting transparent and equitable business practices. Further research is needed to identify other factors that may influence tax aggressiveness and to better understand the dynamics between auditors and corporate tax strategies.This study examines the influence of independent auditors' opinions on the tax aggressiveness of companies listed on the Brazilian stock exchange (B3) from 2017 to 2022. Tax aggressiveness, viewed as corporate strategies to reduce tax burdens, is measured through three key metrics: book-tax differences (BTD), effective tax rate (ETR), and tax rate on value added (TTVA). The study analyzes the length, readability, and tone of auditors' opinions to determine whether these factors correlate with tax aggressiveness. The findings indicate that informational variables, such as opinion length, readability, and tone, do not show significant correlations with tax aggressiveness metrics. This suggests that the standardization of audit reports, mandated by regulatory practices, may limit auditors' ability to reflect specific nuances in companies' tax practices. Nevertheless, the tone of the opinion showed slight potential to reveal implicit perceptions about companies’ tax strategies, hinting at an indirect relationship between tone and tax aggressiveness. The study underscores the need for diverse methods and measures when assessing corporate tax management. While standardized reports may limit the detail provided on tax practices, qualitative aspects like tone could offer subtle insights. These findings encourage further research to explore alternative methods, including advanced linguistic analysis, to capture nuances in audit opinions and their potential links to tax strategies