Effect of Book-Tax Conformity on Audit Quality: Evidence from Canada

This paper investigates the effect of Book-Tax Conformity (BTC) on audit quality regarding the proxies of audit fees, auditors’ industry specialization, and audit report lag. Using a sample of Canadian firms listed on Toronto Stock Exchange spanning the years 2006–2016, we applied a panel data analysis to test hypotheses of this research. The authors find that a higher BTC leads to lower audit fees. They also provide evidence that there is a negative association between BTC and auditors’ industry specialization, whereas there is a positive association between BTC and audit report lag. Overall, the findings are prominent to better understanding the effect of BTC on audit quality and are relevant for academic researchers, practitioners, and regulators. This paper contributes to the auditing literature through introducing a different determinant of auditors’ industry specialization and audit report lag, highlighting the Canadian setting, to our best knowledge. In addition, the best of our knowledge, this is the first study to investigate the relationship between the BTC and audit quality in Canadian firms.