Abstract: Using the data of A-share listed companies, this paper explores the effect of tax aggressiveness on audit pricing (proxied by audit fee ratio). The results show that tax aggressiveness is positively related with audit pricing only when tax aggressiveness is at a high level. When tax aggressiveness is at a low level, however, there is a significant negative relationship between tax aggressiveness and audit pricing. Such results demonstrate that when a company is at a low level of tax avoidance, auditor would not regard the increased tax aggressiveness as a sign of risk, but as a possitive effort to increase shareholders ’ wealth. Further tests show that ownership by institutional investors, internal-control quality and analyst coverage can alleviate the positive relationship between tax aggressiveness and audit pricing when the tax aggressiveness is at a high level. When the tax aggressiveness is at low level, however, the above factors do not play a significant mediating role. This paper helps understand the auditor’s response to client’s tax avoidance behavior and the double-sidedness of corporate tax avoidance.

Key words: tax aggressiveness, audit risk, audit pricing, traditional perspective, agency perspective