Does IRS Monitoring Deter Managers From Committing Accounting Fraud? Academic Article

abstract

• We examine whether monitoring by the Internal Revenue Service (IRS) affects managers decisions to engage in fraudulent financial reporting. We argue that IRS monitoring provides a disciplining effect reducing managements incentives to engage in rent diversion activities such as costly financial statement misreporting. Using information on IRS audit rates and instances of fraud disclosed in Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Releases (AAERs), we find evidence consistent with IRS monitoring providing positive spillover effects in reducing the likelihood of accounting fraud. Our results are robust to using a matched sample of fraud and nonfraud firms. Altogether, we find evidence that tax authorities provide positive externalities in reducing agency costs through monitoring and enforcement.

authors

• Williams, Brian

published proceedings

• JOURNAL OF ACCOUNTING AUDITING AND FINANCE

altmetric score

• 5

author list (cited authors)

• Mason, P., & Williams, B.

citation count

• 11

complete list of authors

• Mason, Paul||Williams, Brian

publication date

• July 2022

publisher

• SAGE Publications  Publisher

published in

• JAAF: Journal of Accounting Auditing and Finance  Journal

keywords

• Accounting Fraud
• Government Monitoring
• Internal Revenue Service

Digital Object Identifier (DOI)

• 10.1177/0148558X20939720

start page

• 700

end page

• 722

volume

• 37

issue

• 3

URL

• http://dx.doi.org/10.1177/0148558x20939720