Information Content and Earnings Management Implication of Changes in the Valuation Allowance for Deferred Tax Assets

2004 ◽  
Author(s):  
Do-Jin Jung
Keyword(s):  
Earnings Management ◽  
Information Content ◽  
Deferred Tax Assets ◽  
Valuation Allowance ◽  
Management Implication ◽  
Deferred Tax

The Information Content of the Deferred Tax Valuation Allowance

2003 ◽  
Vol 78 (2) ◽  
pp. 471-490 ◽  
Author(s):  
Krishna R. Kumar ◽  
Gnanakumar Visvanathan
Keyword(s):  
Information Content ◽  
Event Study ◽  
Reporting Standards ◽  
Taxable Income ◽  
Deferred Tax Assets ◽  
Valuation Allowance ◽  
Deferred Tax ◽  
Future Outcomes

An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the realization of deferred tax assets (DTA). Our evidence supports a characterization where investors use VA disclosures to infer management's expectations about DTA, its realizability, and future taxable income available for realization. These findings are more generally relevant for assessing the consequences of reporting standards that require or permit management judgment, especially about future outcomes. In particular, they support the view that discretion can be a vehicle for management to communicate expectations to the benefit of investors.

scholarly journals Earnings Management Through Deferred Taxes Recognized Under IAS 12: Evidence From Pakistan

2014 ◽  
Vol 3 (1) ◽  
pp. 1-19
Author(s):  
Abdul Rafay Abdul Rafay ◽  
Mobeen Ajmal
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Relevant Information ◽  
Cash Flows ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
Operational Activities ◽  
Deferred Tax ◽  
Relevant Component

This study examines earnings management through deferred taxes calculated under the IAS 12 and its impact on firm valuation. The literature finds that book–tax nonconformity leads to better earning quality and a greater association between earnings and future expected cash flows. Given that Pakistan is a pioneering implementer of the International Financial Reporting Standards, our hypothesis is that the components of deferred tax disclosed under the IAS 12 provide value-relevant information to equity investors. We divide deferred tax components into three categories: those arising from (i) operational activities, (ii) investing activities, and (iii) financing activities. These are subdivided to ensure that no value-relevant component is aggregated with a nonvalue-relevant component, which might otherwise lead to an information slack. Our sample includes data on shariah-compliant companies listed on the Karachi Meezan Index (KMI-30). We find that deferred tax line items in firms’ balance sheets are reflected in market prices. Investors also tend to treat deferred tax line items (arising from operating, financing, and investing activities) differently. Furthermore, the value relevance is dissimilar for different components of deferred tax. Investors are wary of deferred tax assets and liabilities when pricing and are likely to penalize firms with a higher deferred tax position.

scholarly journals Does Transfer Pricing Moderate the Effect of Deferred Tax Assets and Deferred Tax Expenses on Accrual Earnings Management of Firms in Indonesia?

2021 ◽  
Vol 6 (3) ◽  
pp. 97-103
Author(s):  
Nera Marinda Machdar ◽  
Dade Nurdiniah
Keyword(s):  
Earnings Management ◽  
Transfer Pricing ◽  
Manufacturing Companies ◽  
Moderator Variable ◽  
Policy Makers ◽  
Deferred Tax Assets ◽  
Management Actions ◽  
Deferred Tax ◽  
Accounting Policy

The purpose of this study is to analyze (a) the effect of deferred tax assets on accrual earnings management; (b) the effect of deferred tax expenses on accrual earnings management; (c) the role of transfer pricing as a moderator variable to strengthen the effect of deferred tax assets on accrual earnings management; and (d) the role of transfer pricing as a moderator variable to strengthen the effect of deferred tax expenses on accrual earnings management. The samples consist of 160 manufacturing companies listed in Indonesia Stock Exchange (IDX). The study utilizes the financial statements from 2012 to 2018. This study presents that (a) deferred tax assets influence accrual earnings management; b) deferred tax expenses affect accrual earnings management; c) transfer pricing does not strengthen the effect of deferred tax assets on accrual earnings management; and d) transfer pricing does not strengthen the effect of deferred tax expenses on accrual earnings management. This study contributes to accounting studies, tax authorities and regulators, and accounting policy makers. Firstly, this research contributes to the development of accounting studies on the role of transfer pricing as a moderator of the effect of deferred tax assets and deferred tax liabilities on earnings management. Secondly, the results of this study can make a consideration for tax authorities and regulators in addressing company management actions to minimize the amount of tax paid by utilizing policies according to PSAK. It is worth considering how to sanction companies that deliberately reduce the amount of tax that should be paid. It is necessary to conduct tax investigation by the Directorate General of taxes on companies that are indicated to have practiced accrual earnings management with the aim of reducing the tax burden. Thirdly, accounting policy makers need to consider how management reduces the tax that should be paid through accounting policies that are allowed under PSAK and transfer pricing mechanism.

Decomposing Changes in Deferred Tax Assets and Liabilities to Isolate Earnings Management Activities

2004 ◽  
Vol 26 (s-1) ◽  
pp. 43-66 ◽  
Author(s):  
John D. Phillips ◽  
Morton Pincus ◽  
Sonja Olhoft Rego ◽  
Huishan Wan
Keyword(s):  
Earnings Management ◽  
Income Tax ◽  
Deferred Tax Assets ◽  
Using Data ◽  
Deferred Tax ◽  
Annual Earnings ◽  
Tax Expense ◽  
Footnote Disclosures

This paper provides evidence on the types of accounts that reveal earnings management activities. We build on Burgstahler and Dichev's (1997) evidence of earnings management to avoid an earnings decline and Phillips et al.'s (2003) findings that deferred tax expense (DTE) can be used to detect such earnings management. In particular, we investigate the relation between changes in annual earnings and changes in deferred tax asset and liability components using data hand-collected from firms' income tax footnote disclosures. Our evidence indicates that changes in the net deferred tax liability (DTL) component related to revenue and expense accruals and reserves can be used to detect earnings management to avoid an earnings decline. In addition, we build on Joos et al.'s (2003) results and partition our sample into firm-years with positive and negative changes in net DTLs and repeat our analyses. In contrast to the Joos et al. (2003) finding that DTE can be used to detect earnings management only for firm-years in which DTE is negative, we find that both subsamples reflect earnings management of revenue and expense accruals and reserves to report earnings increases.

scholarly journals PENGARUH PERENCANAAN PAJAK TERHADAP MANAJEMEN LABA (Studi Empiris Pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia Tahun 2015-2017)

2019 ◽  
Vol 4 (1) ◽  
pp. 77-88
Author(s):  
Fatchan Achyani ◽  
Susi Lestari
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Annual Report ◽  
Stock Exchange ◽  
Tax Planning ◽  
Free Cash Flow ◽  
Managerial Ownership ◽  
Deferred Tax Assets ◽  
Deferred Tax ◽  
Tax Expense

This study aims to examine the effect of tax planning on earnings management. In addition, several factors that are thougt to also affect earnings management are also tested, among others: deferred tax expense, deferred tax assets, managerial ownership, and free cash flow. The data used in this study is the annual report of companies listed on Indonesia Stock Exchange in the period 2015-2017. Jones modifications are used to measure earnings management. This study uses multiple regression analysis tools. The results showed that only free cash flow can affect earnings management while tax planning, deferred tax expense, deferred tax assets, and managerial ownership do not affect earnings management.

scholarly journals Pengaruh Beban Pajak Tangguhan, Aktiva Pajak Tangguhan, Dan Akrual Terhadap Manajemen Laba Pada Perusahaan Aneka Industri Yang Terdaftar Di Bursa Efek Indonesia Periode 2015-2020

2021 ◽  
Vol 6 (2) ◽  
pp. 215-224
Author(s):  
Owen De Pinto Simanjuntak
Keyword(s):  
Earnings Management ◽  
Stock Exchange ◽  
Coefficient Of Determination ◽  
F Test ◽  
Purposive Sampling ◽  
Deferred Tax Assets ◽  
Industrial Companies ◽  
Simultaneous Test ◽  
Deferred Tax ◽  
Tax Expense

This study aims to determine the effect of deferred tax expense, deferred tax assets, and accruals on earnings management. The population in this study are various industrial companies listed on the Indonesia Stock Exchange for the 2015-2020 period. This research is a descriptive research with a quantitative approach. Data processing program using SPSS Version 25.By using 5 companies using purposive sampling. The data used in this study is secondary data, namely data on the financial statements of various industrial sector companies listedon the Indonesia Stock Exchange in the 2015-2020 period. The sample selection method used purposive sampling, namely the sampling method based on certain criteria. Of the 45 various industrialcompanies listed on the Indonesia Stock Exchange, there are only 5 companies that meet the research sample criteria that have been determined. The data analysis method used inthis research is multiple linear regression test, coefficient of determination (R^2) and correlation (R), partial test (t-test) and Simultaneous test (F-test) while earnings management is measured based on dummy variables. The results of this study indicate that deferred tax expense affects earnings management, deferred tax assets affect earnings management and accruals have no effect on earnings management.Based on the simultaneous test (F test) variable deferred tax expense, deferred tax assets andaccruals together have no effect on earnings management in various industrial companies listed on the Indonesia Stock Exchange in 2015-2020.

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