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Does opting out from auditing decrease earnings quality and/or increase tax aggressiveness? An analysis of small companies from Norway.

Rokkan, Ole Kristoffer; Østrem, Olav Kvinnesland
Master thesis
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URI
http://hdl.handle.net/11250/2577636
Date
2018
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  • Master of Science [1823]
Abstract
Following a new legislation in Norway from 2011, smaller unlisted Norwegian

companies now have an opportunity to opt out from auditing. We hypothesize that

this has led to a decrease in earnings quality and an increase in tax aggressiveness

for these opt out firms. A large Norwegian private limited liability company data

sample rejects our hypotheses and indicate better quality earnings and less tax

aggressiveness amongst opt out firms.

Earnings quality is operationalized using an OLS and a fixed effects research design

using regressions on discretionary accruals and discretionary revenues, while tax

aggressiveness is operationalized in the same way, using the Cash Effective Tax Rate

(CETR) and Book-Tax-Difference (BTD).

The results increase understanding of side-effects from this new legislation and

provide insights into the economics and accounting standards in a Norwegian

setting. Further, our paper adds to the understanding of auditor effects on private

companies, a scarcely researched field, possibly due to difficulty in obtaining data in

some countries.

We would like to sincerely thank our supervisor, John Christian Langli, for lending

us his expertise and guidance in writing our Master Thesis. There are plausibly no

better expert in this field of study that we could have conferred with. We have enjoyed him lecturing us, respected his warranted strictness and we hope to do him proud.
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Masteroppgave(MSc) in Master of Science in Business, Business law, tax and accounting - Handelshøyskolen BI, 2018
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Handelshøyskolen BI

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