Auditor provided tax services and aggressive reporting

We examine the effect of auditor-provided tax services (APTS) on the association between financial and tax reporting aggressiveness. We find that the positive relation between financial and tax reporting aggressiveness from book-tax differences is attenuated when companies purchase tax services from their auditors. Further, we find that the positive relation between financial and tax reporting aggressiveness is weaker as the ratio of tax fees to total fees gets higher, consistent with knowledge spillover from APTS. We contribute to the continuing debate on APTS especially for regulators by suggesting that further restriction or outright banning of APTS might exacerbate aggressive reporting behavior.