Auditors' Constraining Effect on Tax Noncompliance at Different Book-Tax Conformity Levels in a Transition Economy

2016 ◽  
Vol 15 (3) ◽  
pp. 1-30 ◽  
Author(s):  
K. Hung Chan ◽  
Rebecca Luo ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Earnings Management ◽  
Transition Economy ◽  
Tax Compliance ◽  
High Quality ◽  
Auditor Quality ◽  
Direct Linkage ◽  
Tax Reporting ◽  
Jel Classifications ◽  
Tax Noncompliance

ABSTRACT This study examines how differential auditor quality can affect clients' tax noncompliance at different book-tax conformity levels. Overall, we find that high-quality auditors are associated with client firms' better tax compliance. Specifically, high-quality auditors are effective in constraining book-tax-conforming noncompliance because of the direct linkage between financial and tax reporting for such noncompliance at both the higher and the lower conformity periods. In contrast, high-quality auditors' constraining effect on book-tax-difference noncompliance is significant only in the lower conformity period when there are more opportunities for reporting irregularities. Furthermore, firms that switch from a low- to a high-quality auditor have better tax compliance after the switch. This study contributes to the literature by providing evidence that high-quality auditors not only can constrain clients' earnings management, but can also constrain tax noncompliance. JEL Classifications: M41; M42.

Real Earnings Management before and after Reporting SOX 404 Material Weaknesses

2015 ◽  
Vol 30 (1) ◽  
pp. 119-141 ◽  
Author(s):  
Tuukka Järvinen ◽  
Emma-Riikka Myllymäki
Keyword(s):  
Earnings Management ◽  
Internal Control ◽  
Internal Controls ◽  
Real Earnings Management ◽  
Public Disclosure ◽  
High Quality ◽  
The Public ◽  
Material Weaknesses ◽  
Internal Control System ◽  
Before And After

SYNOPSIS The purpose of this study is to investigate whether SOX Section 404 material weaknesses manifest in real earnings management behavior. The empirical findings indicate that, compared to companies with effective internal controls, companies with existing material weaknesses in their internal controls engage in more manipulation of real activities (particularly inventory overproduction). This implies that the weak commitment by management to provide effective internal control system and high-quality financial information relates to a tendency to use real earnings management methods. Moreover, we find evidence suggesting that companies employ real earnings management (overproduction and reduction of discretionary expenses) after disclosing previous year's material weaknesses. We conjecture that the public disclosure of material weaknesses induces management to strive to mitigate the expected negative reactions of stakeholders to the disclosure by engaging in real earnings management, which is not easily detected or constrained by outsiders. Overall, this study suggests that material weaknesses in internal controls signal an environment where management is more inclined to employ real earnings management.

Taxpayer behavioural factors influencing entrenched tax gaps

2021 ◽  
Author(s):  
◽  
Divakaran Reddy
Keyword(s):  
Meta Analysis ◽  
Tax Compliance ◽  
Public Trust ◽  
Accurate Estimate ◽  
Research Approach ◽  
International Studies ◽  
Tax Revenues ◽  
Study Results ◽  
The Government ◽  
Tax Noncompliance

Tax compliance is the willingness of taxpayers to obey tax rules of a nation, whilst tax noncompliance is the unwilling behaviour of citizens to act under tax regulations. Taxpayer compliance enables the government to collect tax revenues, which is one of the most important sources of government income. Altering the non-compliant behaviour of citizens is an important barometer for increasing tax revenues that contribute to the socio-economic development of a nation. Numerous quondam studies have been conducted strikingly in the past few decades on taxpayer compliance. However, there is a dearth of sufficient research currently on tax noncompliance behaviour. Moreover, the phenomenon of tax noncompliance has limited exploration from the vantage point of meta-analysis of primary research studies conducted, focussing on interrogating, and systematically categorising their results. Resultantly, the purpose of this study was to examine the previously related primary studies to determine those factors that have been judged to have influenced the tax compliance behaviour of citizens. This study has adopted the quantitative research approach and followed the preferred reporting items for systematic review (PRISMA) method and meta-analysis to provide an accurate estimate of the relationship that exists in a population of relevant tax noncompliance behavioural studies. The population comprised of 45 international studies conducted between the period 2015 to 2020 is selected for analysis. The study results indicate that the quality of tax administration systems and public trust in institutional governance are factors that have influenced taxpayer compliance positively. Poor government accountability mechanisms entrenched tax gaps, and developing public trust in government institutions were found to be universal to promote voluntary taxpayer compliance. This study has contributed significantly to the open discussion on tax compliance among researchers, governments, and businesses.

scholarly journals Impact of Changes in Accounting Standards on Earnings Management

2020 ◽  
Vol 2 (2) ◽  
pp. 166-175
Author(s):  
Kawa W. Muhamad ◽  
Subhi M. Saleh ◽  
Kees van Paridon
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Accounting Standards ◽  
Reporting Quality ◽  
Quality Standards ◽  
Financial Reporting Quality ◽  
High Quality ◽  
Generally Accepted Accounting Principles ◽  
Financial Reporting Standards ◽  
Accounting Principles

This study considers the question whether the changes in Accounting Standards has led to companies making less use of earnings management. The paper is an attempt to investigate whether the application of high quality standards like International Financial Reporting Standards (IFRS) is related to high financial reporting quality. This study addresses this issue empirically. Furthermore, this research examines whether German companies that have applied IFRS have less earnings management compared to German companies that report according to the German Generally Accepted Accounting Principles (GGAAP). The sample, consisting of two equally large listed companies in Germany (Südzucker Group and Henkel Group) from 2003-2014. The study suggests that IFRS-adopters show different earnings management performance compared to companies reporting under German GAAP. This finding contributes to the discussion on whether high quality standards are appropriate and operational in countries with weak investor protection rights. The result shows that adopters of IFRS in Germany can be related with less use of earnings management as a result of changes in accounting standards. This result is contradictory with previous research that was done by Van Tendeloo and Vanstraelen, (2005), and consistent with the previous research conducted by Ball et al. (2003).

scholarly journals PERSONALIZED AND PROACTIVE ONLINE SERVICES AS A PLATFORM FOR CREATING A SYSTEM OF VOLUNTARY TAX COMPLIANCE

2021 ◽  
pp. 42-48
Author(s):  
Tatyana Vladimirovna Deeva
Keyword(s):  
Swot Analysis ◽  
Tax Compliance ◽  
Digital Transformation ◽  
Global Network ◽  
High Quality ◽  
Online Services ◽  
Administrative Services ◽  
Effective Work ◽  
Advantages And Disadvantages ◽  
Slow Development

Relevance. The article reveals the actual possibilities of introducing digital technologies in the field of tax regulation, the provision of administrative services to taxpayers. The author has carried out a SWOT analysis of electronic services of the tax service in the context of digital transformation, identified the opportunities and threats to the development of digital tax administration. In the context of universal digitalization, the study of the above issues is an urgent topic. Results. It has been established that digital transformation of taxation and tax procedures is a difficult and costly task for personalized online services, therefore it has the same advantages and disadvantages. Weaknesses in the implementation of online services in the field of taxation are identified: data security problems; lack of public presentation and ignorance of taxpayers; a certain part of the population lacks access to the global network, IT infrastructure and electronic services; too slow development of e-business and government; an acute shortage of regulatory framework and information in the IT sector. Conclusions. The FTS as a service department should provide inexpensive and high-quality services. In this regard, FTS specialists must quickly respond to any facts of improper provision of services, since the high quality of tax services and the maximum number of electronic services is an indicator of effective work with taxpayers.

Paying the State Use Tax

2016 ◽  
Vol 45 (2) ◽  
pp. 260-282 ◽  
Author(s):  
John E. Anderson
Keyword(s):  
Income Tax ◽  
Research Question ◽  
Tax Compliance ◽  
Behavioral Study ◽  
Reporting Behavior ◽  
Tax Returns ◽  
Use Tax ◽  
Rate Selection ◽  
Tax Reporting ◽  
Selection Of

To improve use tax compliance, twenty-seven states have added a line to their income tax returns where taxpayers can report taxable sales. This article reports results of a behavioral study of a postcard “nudge” sent to income tax filers in one of those states, Nebraska, to encourage self-reporting of liability. The research question is whether the informational nudge was sufficient to alter self-reporting behavior. Data indicate that the nudge more than doubled the likelihood of use tax reporting and nearly doubled the amount of revenue collected, but the rate of use tax reporting remains extremely low. Probit models reveal that use tax reporting rises with income at a decreasing rate. Selection models are also estimated because of positive selection bias in the selection of the treatment group. Taken together, the results indicate that an informational nudge is not likely to be sufficient to substantially change use tax reporting behavior.

Clawbacks and Earnings Management

2018 ◽  
Vol 31 (3) ◽  
pp. 129-151 ◽  
Author(s):  
Carolyn B. Levine ◽  
Michael J. Smith
Keyword(s):  
Numerical Analysis ◽  
Earnings Management ◽  
Cash Flows ◽  
Data Availability ◽  
Real Earnings Management ◽  
Interim Report ◽  
Short Term ◽  
Period Model ◽  
Jel Classifications

ABSTRACT This study addresses the effect of clawbacks on earnings management (EM). In a two-period model, the manager can report truthfully or distort an interim report using either accrual or real EM. The principal can make short-term payments based on a manipulable accounting signal and long-term payments based on unmanipulable cash flows. The strength of the clawbacks determines the likelihood that the manager's compensation is reclaimed when the interim report was managed. Stronger clawback provisions may result in (1) a substitution between accrual and real earnings management, or (2) earnings management when no earnings management was optimal with weak clawbacks, and (3) lower expected profits for the principal. Numerical analysis suggests that strong clawbacks do not reduce aggregate earnings management. JEL Classifications: J33; M48; M52; G38. Data Availability: All data are simulated.

Long-Term Orientation and Earnings Management Strategies

2019 ◽  
Vol 18 (3) ◽  
pp. 97-119 ◽  
Author(s):  
Jesper Haga ◽  
Fredrik Huhtamäki ◽  
Dennis Sundvik
Keyword(s):  
Earnings Management ◽  
High Precision ◽  
Management Strategy ◽  
Management Strategies ◽  
Real Earnings Management ◽  
Short Term ◽  
Country Level ◽  
Earnings Benchmarks ◽  
Jel Classifications

ABSTRACT In this study, we investigate how country-level long-term orientation affects managers' willingness to engage in earnings management and choice of earnings management strategy. Using a comprehensive dataset of 47 countries for the period from 2003 to 2015, we find that firms in long-term-oriented cultures rely relatively more on earnings management through accruals, while firms in short-term-oriented cultures engage in relatively more real earnings management. Furthermore, we find a larger discontinuity around earnings benchmarks in long-term-oriented cultures suggesting that manipulation of accruals enables benchmark beating with high precision. JEL Classifications: M14; M16; M21; M41.

Consistency of Book-Tax Differences and the Information Content of Earnings

2012 ◽  
Vol 34 (2) ◽  
pp. 93-116 ◽  
Author(s):  
Linda H. Chen ◽  
Dan S. Dhaliwal ◽  
Mark A. Trombley
Keyword(s):  
Standard Deviation ◽  
Earnings Management ◽  
Information Content ◽  
Joint Effect ◽  
Tax Planning ◽  
Taxable Income ◽  
Incremental Effect ◽  
The Difference ◽  
Jel Classifications

ABSTRACT This paper examines the effect of tax planning and earnings management on the informativeness of book income and taxable income. We conduct two sets of tests documenting (1) the incremental effect of tax planning and earnings management on the informativeness of book and taxable income, and (2) the relation between the consistency of the book-tax difference and the informativeness of book and taxable income. The consistency of the book-tax difference depends on firm decisions regarding incremental earnings management and tax planning. Consistency of the book-tax difference is measured as the standard deviation of the discretionary component of the difference between book income and taxable income. Our results show that consistency of the book-tax difference, as a measure of the joint effect of earnings management and tax planning, is related to persistence of both book and tax income and has an incremental effect on information content of both book income and taxable income. JEL Classifications: G12; G32; H24; H25.

Does Dividend Policy Drive Earnings Smoothing?

2014 ◽  
Vol 28 (3) ◽  
pp. 501-528 ◽  
Author(s):  
Nan Liu ◽  
Reza Espahbodi
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Earnings Persistence ◽  
Spurious Correlation ◽  
Earnings Smoothing ◽  
Alternative Measures ◽  
Jel Classifications

SYNOPSIS This paper examines the earnings-smoothing behavior of dividend-paying firms. We show that dividend-paying firms engage in more earnings smoothing than non-payers through both real activities and accrual choices. More specifically, dividend-paying firms with positive (negative) pre-managed earnings changes engage in more downward (upward) earnings management than non-payers. Additional tests suggest that the results are driven by dividend-related incentives and not the differences in the economic characteristics of dividend-paying firms, are robust to alternative measures of earnings management, and are not due to spurious correlation. We also show that earnings smoothing, in part, explains the higher earnings persistence of dividend-paying firms. These findings are consistent with a firm's dividend policy having an incremental impact on earnings-smoothing behavior. JEL Classifications: M41; G35

scholarly journals An Investigation of the Theory of Planned Behavior and the Role of Tax Amnesty in Tax Compliance

2018 ◽  
Vol 7 (1) ◽  
pp. 79
Author(s):  
Agnes Findia Novianti ◽  
Nurul Hasanah Uswati Dewi
Keyword(s):  
Theory Of Planned Behavior ◽  
Planned Behavior ◽  
Structural Equation ◽  
Behavioral Control ◽  
Tax Compliance ◽  
Subjective Norms ◽  
Equation Modeling ◽  
Perceived Behavioral Control ◽  
Tax Amnesty ◽  
Tax Noncompliance

The individual taxpayers’ low awareness has become the main problem of developing countries in tax aspect. Thus, this study aimed to examine the determinant factors of tax noncompliance using Ajzen’s (1991) Theory of Planned Behavior as a theoretical framework. Specifically, Tax Amnesty is added to the theory’s constructs: attitude, subjective norms, and perceived behavioral control. Tax Amnesty is expected to be a moderating influence. The population of this study is individual taxpayer in KPP Pratama Sukomanunggal. Based on convenience sampling method, the number of sample in this study are 145 samples. The data was analyzed using Structural Equation Modeling (SEM) with SmartPLS.3.0 and SPSS 21. The results indicated that first, attitude and subjective norms are significantly influence behavioral intention except perceived behavioral control. Second, the model including Tax Amnesty provides a significant influence of tax noncompliance in two constructs; attitude and subjective norms. However, the interaction effect of perceived behavioral control does not appear significantly.

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