The Effectiveness of External Audit on Tax Collection in Ethiopia: Case of Large Tax Payers Office

Open Access

Abstract

This paper provides some evidences how the government benefited from the external auditors effectiveness on tax collection by minimizing the loopholes which exposed for tax avoidance, evasion and shelter. Research data collected from the population auditing firms based in Addis Ababa and sample were taken from twenty firms based on their size and number of employees. 100 questionnaires were distributed to external auditors titled senior and above constructed by 5 point likert scale. 82 responses are obtained from the respondents and summarized by using excel spread sheet before processed by STATA software to have descriptive and regression analysis quantified results. The qualitative data from interview was used to triangulate the respondents result from Stata. Eight hypotheses was proposed and checked as a result competence, independence, regulatory body and tax audit have significant effect and strong relation with the effectiveness of external auditors performance on tax collection in comparing with audit firm size, audit fee and audit tenure. In contrary awareness of tax by the external auditors inversely related. The study recommended the governing body should work in co-operation with AABE, finance professional association and individuals, there must be a comprehensive tax manual used as a reference, a controlling mechanism should be set for external audit professionals, the training and education department must be well arranged and structured to provide support, AABE should to revise audit firm certification criteria to increase the number of external audit firms and at last tax audit by the tax authority preferably should be done as soon as tax report delivered by the tax payers.