Effect Quality External Audit on Tax Evasion: Sample of Industrial Companies Listed on The Iraq Stock Exchange
Abstract
The research will be used to understand how the quality of external auditing is related to the reduction of tax evasion of industrial companies listed on the Iraqi Stock Exchange, with a sample of four companies in a 20-year period between 2005 and 2024 (80 observations). The search issue was that the tax evasion rate is too high, thus inhibiting the state revenue, and no prior research by Iraqi researchers was found to present the evidence of the external auditing as an effective tool of governance and control to prevent the accounting practices applied by the agents to evade paying taxes. The importance of work is that it offers certain quantitative measures that could be supplied to regulatory institutions and tax policies to become more transparent, efficient in compliance, and reliable in financial resources.
The research is based on a quantitative design and uses actual data from yearly reports and checked market databases. The quality of external audits was measured by the total audit charge ratio (TACC_RATIO); a lower ratio indicates better audit quality. The tax evasion ratio (BTD) was employed to assess tax avoidance, meaning that a higher tax evasion ratio suggests greater tax avoidance. The study included firm size and return on assets (ROA) as control variables to enhance the model’s explanatory strength. The analysis involved descriptive statistics, Pearson correlation, simple and multiple regression, as well as analysis of variance (ANOVA), F-tests, and t-tests. Furthermore, there is a statistically significant relationship between evaluations of external auditors and tax evasion, although this is influenced by return on assets and firm size.
The findings indicated that the measure of the External Audit Quality Model (TACC) has a strong explanatory power to change the behaviour of tax evasion, which contributes to the validity of this measure in the application of the study in practice. This paper suggests that the regulators and taxation bodies should pay greater attention to the results of external audit as supportive information during the analysis of the performance of the companies in terms of adherence to the tax requirements and enhancement of the efficiency of the taxation system.
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