Joint Audit Engagements and Client Tax Avoidance: Evidence from the Italian Statutory Audit Regime

Under the Italian statutory audit regime, three individual accountants are appointed to jointly audit each client. Working together on multiple engagements, individual auditors form professional networks that can be conduits of knowledge spillover. We use network measures of centrality to capture auditors’ ability to acquire and apply expertise across engagements. We demonstrate that clients engaging better-connected individual auditors have comparatively lower effective tax rates. Our results are robust to controlling for characteristics of the client, individual auditor, and auditor’s firm, as well as audit quality and fees. Moreover, we use individual auditor fixed effects to examine the effect of time-invariant individual auditor characteristics. Our fixed effects analyses indicate that both time-invariant individual auditor characteristics and changes in auditor centrality over time are associated with client tax outcomes. Our findings suggest that an environment encouraging individual cross-appointments over multiple engagements can facilitate the transfer of expertise between members of professional teams.