This study examined 4439 firm-year observations from 759 publicly listed manufacturing firms in South Korea (KOSPI) over the period 2018–2024. We investigated whether communication between internal and external auditors (Com) and auditor-provided tax services (APTS) affects conditional accounting conservatism, measured through asymmetric loss recognition using a Basu-style earnings response model. Inter-auditor communication was captured from documented audit interactions disclosed in DART filings, while APTS was identified from tax-related non-audit service disclosures. This empirical setting enabled a focused examination of how audit governance mechanisms influence the timely recognition of economic losses. Enhanced communication between auditors further improves this responsiveness, particularly when internal audit engagement is high, suggesting that governance effectiveness depends on collaborative reporting. While APTS do not directly affect conservatism, their interaction with strong audit governance can either reinforce or weaken conservative reporting practices. These findings challenge the assumption that non-audit tax services necessarily impair auditor independence. Instead, they highlight the importance of integrated audit frameworks that combine rigorous internal oversight with effective inter-auditor collaboration. The study underscores the interdependence of audit control, teamwork, and service complexity in shaping financial reporting quality, offering insights for regulators, auditors, and corporate governance policymakers.
Citation: Myo Min Kyaw, Sung Man Yoon. The effect of communication between internal and external auditors and auditor-provided tax services on accounting conservatism[J]. National Accounting Review, 2026, 8(1): 77-94. doi: 10.3934/NAR.2026004
This study examined 4439 firm-year observations from 759 publicly listed manufacturing firms in South Korea (KOSPI) over the period 2018–2024. We investigated whether communication between internal and external auditors (Com) and auditor-provided tax services (APTS) affects conditional accounting conservatism, measured through asymmetric loss recognition using a Basu-style earnings response model. Inter-auditor communication was captured from documented audit interactions disclosed in DART filings, while APTS was identified from tax-related non-audit service disclosures. This empirical setting enabled a focused examination of how audit governance mechanisms influence the timely recognition of economic losses. Enhanced communication between auditors further improves this responsiveness, particularly when internal audit engagement is high, suggesting that governance effectiveness depends on collaborative reporting. While APTS do not directly affect conservatism, their interaction with strong audit governance can either reinforce or weaken conservative reporting practices. These findings challenge the assumption that non-audit tax services necessarily impair auditor independence. Instead, they highlight the importance of integrated audit frameworks that combine rigorous internal oversight with effective inter-auditor collaboration. The study underscores the interdependence of audit control, teamwork, and service complexity in shaping financial reporting quality, offering insights for regulators, auditors, and corporate governance policymakers.
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Myo Min Kyaw, Sung Man Yoon. The effect of communication between internal and external auditors and auditor-provided tax services on accounting conservatism[J]. National Accounting Review, 2026, 8(1): 77-94. doi: 10.3934/NAR.2026004
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