New auditing rules are curbing international money moves, study suggests
A new study suggests that expanded financial audit reporting is having a significant impact on the behavior of multinational corporations. Specifically, the study finds that requiring more detailed analysis in financial audits appears to be curbing the corporate practice of shifting money internationally to pay less in taxes.
A recent study indicates that stricter financial audit reporting requirements are influencing multinational corporations to reduce international money transfers aimed at minimizing tax liabilities. Over the past two decades, national audit boards globally have implemented new standards mandating financial statement auditors to deliver comprehensive reports outlining significant audit matters (KAMs).
These KAMs shed light on complex or challenging aspects of a company's operations during the auditing process. When the study focused on KAMs related to uncertain tax positions (UTPs)—which involve companies holding tax reserves to cover potential overpayments—the researchers discovered that such disclosures reduced multinational corporations' tendency to engage in international income shifting.
The findings suggest that the increased transparency associated with UTP KAMs makes income shifting less appealing to companies due to heightened investor uncertainty about their corporate tax positions. The study, co-authored by researchers from North Carolina State University, IESEG School of Management, Erasmus University Rotterdam, and IE Business School, analyzed data from over 207,000 affiliate-year observations across 25 European nations from 2012 to 2021.
The researchers emphasize that understanding the impact of KAMs requires a focused examination of specific areas related to each KAM, rather than treating them as a broad category.
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