The effects of accounting earnings differences with taxable incomes on audit quality with Emphasis on the Role of earnings quality

Accounting and taxation are two separate fields with different objectives, but they have one thing in common. In fact, accounting earnings are always the starting point to calculate income taxes. Taxable incomes are determined based on regular accounting procedures and tax-related laws. Moreover, one of the cases related to increased audit risks, which results in the alterations of quality, is high differences between book accounting earnings and taxable incomes. On this basis, the aim of present research to investigate the effects of earnings quality on the relationship of the difference between accounting earnings and taxable incomes with audit quality. In this regard, the statistical sample of the study includes data of 91 companies listed on the Tehran Stock Exchange during 2014-2017. Multivariate linear regression was used to test hypotheses. Findings indicated that earnings quality has a moderating role in the relationship of the difference between accounting earnings and taxable incomes with audit quality, so that corporations with high differences between accounting earnings and taxable incomes enjoy higher audit quality. That is, book-taxable income differences represent an observable measure of earnings quality, which has some effects of decisions made by auditors.