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Our study explores a possible benefit of conforming book income to taxable income. We expect that increased book-tax conformity can reduce audit fees by simplifying tax accruals and increasing tax authorities' monitoring, which reduce audit workload and audit risk, respectively. Consistent with our expectations, we find that a higher country level of required book-tax conformity leads to lower audit fees. Moreover, firm-level book-tax differences are positively associated with audit fees. We also find that the negative association between country level of required book-tax conformity and audit fees is mitigated among firms with larger book-tax differences. Our findings are robust to including country-level legal investor protection or other extra-legal institutions. Overall, our results suggest that one benefit of increasing book-tax conformity is the reduction in audit fees. [ABSTRACT FROM AUTHOR]
