Does Audit Quality Matter?
Evaluating Tax Audit Quality's Impact on Tax
Compliance
Moges Mengstu Kassaw
Research and Development Directorate, Ministry of Revenues Ethiopian
Abstract:
“Tax audit is an activity performed by Tax auditors to determine at taxpayer’s correct
tax liabilities for a particular tax period. The aim of this study is to assess the effect of
tax audit quality, effectiveness on tax compliance perception of taxpayers, on tax
auditor’s perspective, since the number of the population to be studied is small, and there
are 94 tax auditors and team leaders the study was applied census approach. The
response variable of interest is ordinal in nature then the data was analyzed using ordered
logistic regression model. The findings from the study results exposed that both tax audit
quality and tax audit effectiveness have a positive significant effect on tax compliance
behavior of the taxpayer. Being 16.7% more likely to be highly compliant and 6.32%
less likely to be low compliant are correlated with every one point increase in tax audit
quality. Additionally, a unit increase in tax audit effectiveness is related to an 11.8% rise
in highly compliant behavior. Accordingly, the tax office ought to have paid periodic
attention to the quality of the tax audit file, because higher-quality tax audits will result
in higher rates of tax compliance, and the tax office could increase the quality of their
audits by providing auditors with ongoing training, improving IT usage, educating
taxpayers, and encouraging all necessary voluntary compliance.”
Keywords: tax audit, compliance, audit quality, effectiveness
Questions:
1- Answer from the text the upcoming question:
- A balance sheet is divided into two sections: assets and liabilities.
- Performance is usually evaluated by efficiency and audit quality.
- The sample of the study contains is tax audit.
- The empirical model used in the study is: ordered logistic regression model.
2- Determine whether the following sentences are ‘’true’’ or ‘’false’’ (underline
the false).
- Tax audit is a function allocated to verify whether taxpayers have paid their future
duties to the government. (false)
- Therefore, the tax office should have regularly assessed the quality of the tax
audit files, as higher-quality audits lead to increase tax compliance rates.( true)
- The study findings revealed that asymmetrically the quality and effectiveness of
tax audit significantly influence taxpayers’ compliance comportment(false)
- The tax office could enhance the quality of its audits by providing ongoing
training for auditors, improving IT usage, educating taxpayers and encouraging
all necessary voluntary compliance (true)
3-Other questions (without using the text):
-The second financial market is: stock market
-Taxation is paid by: tax payers
-Global domestic product is calculated as follows:
By the sum of all the added values realized in a given economy
- Needs of working capital is calculated by the following equation:
Needs of working capital: (current assets-cash) (current liabilities-very short term
obligations )
4-Fill the gaps in the following paragraph by the following words to get a
comprehensive article: warming, increasingly, levels, climate, trend, boost, context,
though, strategy, take care.
The issues related to climate risk and global warning are taking an important place at
different levels around the world in hope of finding a way to reduce their negative impact
on global development. In fact, many international organizations, countries and
institutions are increasingly planning to support green development since it is the main
trend to protect resources and promote them. In this context, the international
organizations tries to boost all the countries of the world to adopt a green strategy in
their national plans while many countries, in turn, are encouraging their institutions to
take care about the strategies aiming to support green development thougt several ways
such as: legislation, green taxes, fiscal exoneration…etc.
5- Write a short paragraph (04-05 lines) highlighting the impact of strategic
auditing on sustainable development.
Strategic auditing plays a crucial role in promoting sustainable development by ensuring that organizations align
their operations with environmental, social, and economic goals. By systematically evaluating practices and
outcomes, strategic audits help identify inefficiencies and areas for improvement, fostering accountability and
transparency. This process encourages businesses to adopt sustainable practices, reduce waste, and enhance
resource management. Furthermore, strategic auditing facilitates stakeholder engagement, ensuring that diverse
perspectives are considered in decision-making, ultimately leading to more resilient and sustainable business
models that contribute positively to society and the planet.
