Download or read book Effects of Auditor provided Tax Services on Book tax Differences and Investors Mispricing of Book tax Differences written by Bing Luo and published by . This book was released on 2015 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Do Audits Deter or Provoke Future Tax Noncompliance Evidence on Self employed Taxpayers written by Sebastian Beer and published by International Monetary Fund. This book was released on 2019-10-11 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.

Download or read book Do Auditor Provided Tax Services Impair Auditor Independence Or Generate Knowledge Spillover Evidence from the Tax Cuts and Jobs Act of 2017 written by Bo Ren and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Regulators increasingly express concerns over auditor-provided tax services (APTS) because those services could impair auditor independence. To date, research on the impact of APTS on auditor independence has yielded mixed results, potentially due to endogeneity issues, providing no clear guidance to regulators. I leverage the Tax Cuts and Jobs Act of 2017 (TCJA), which resulted in an unexpected shock to tax complexity that increased the demand for APTS by multinational firms, and a difference-in-differences research design to provide new insight into this relation. I document that multinational firms most likely affected by the TCJA have a significant increase in APTS fees and audit quality after the enactment of the TCJA. The effect concentrates in clients that are more complex and in restatement types that are likely to be associated with the knowledge spillover, suggesting knowledge spillover is a potential channel for APTS to affect audit quality.

Download or read book The Association Between Changes in Auditor Provided Tax Services and Long Term Corporate Tax Avoidance written by Brian Hogan and published by . This book was released on 2012 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the long-term impact on taxes paid by firms in the time period following the passage of The Sarbanes-Oxley Act of 2002. Legislators, concerned about auditor independence impairment, eliminated the provision of certain non-audit services by auditing firms and required audit committee pre-approval for tax services. As a result, firms decreasingly engaged their audit firms for tax services, instead possibly turning to other accounting firms or internal tax planning, even though information efficiencies may exist by combining the audit-tax function (i.e. knowledge spillover (Gleason and Mills 2011)). Utilizing a sample of 2,240 unique firms covering 2003-2009, we find an economically and statistically significant long-term negative relationship between firm reductions in auditor-provided tax services (APTS) and taxes paid. Further, a portion of this benefit is lost for some firms when returning to their auditor for tax services after a short break. In summary, firms who engage their audit firms for tax services continue to obtain benefits. Firms that reduce or eliminate their APTS, even if retaining other accounting firms for tax engagements, on average pay more taxes over the long-term.

Download or read book Compliance Costs and Book Tax Conformity written by Kathleen Bakarich and published by . This book was released on 2016 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: The decade-long debate on required book-tax conformity has centered on three areas: the information content of earnings, the incentive to engage in earnings management, and the costs of compliance. While the first two have been studied extensively, studies on the effect that conformity may have on compliance costs are limited to estimates of the effect that perfect conformity will have on tax-related compliance costs, a near tautology. This lack of research is perhaps attributable to the relative invariance in conformity within the United States and the relative unavailability of compliance-related data outside the United States. This study overcomes those limitations and fills the gap in the extant research by using an international sample of firms with manually collected audit fee data. We focus on audit fees as it is a more economically significant compliance cost with available data and where the effect of book-tax conformity has tension. Test results show that increased conformity is associated with greater audit fees. This provides evidence that the hypothesized decreases in tax-related compliance costs may be offset by increases in audit fees, implying that the actual reduction in compliance costs may be lower than previously thought. The results of a difference-in-differences test using the adoption of IFRS for consolidated purposes only as an exogenous shock to book-tax divergence shows consistent results and supports a causal prediction. We also find evidence that higher conformity is associated with higher fees paid for auditor-provided tax service, an increased likelihood the firm chooses its auditor to provide tax services, and higher audit quality.

Download or read book The Effect of Disclosing Audit Quality Control Deficiencies on Non Audit Tax Services written by Jaehan Ahn and published by . This book was released on 2020 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether public disclosure of Deloitte 2007 PCAOB Part II report, which identifies quality control deficiencies related to audits of income tax accounts, affects Deloitte's auditor-provided tax services (APTS). Using a difference-in-differences model, we document a 17 percent lower likelihood of Deloitte's audit clients employing APTS relative to clients of other annually inspected firms when the report is made public. We also find that the dampening effect of publicly disclosing the Part II report on Deloitte's APTS is more evident among audit clients paying higher non-audit fees to auditors and those with more complex tax planning. These results suggest that revealing income tax-specific quality control deficiencies prompts audit clients to revise upward (downward) their expected costs (benefits) of perceived auditor independence impairment (knowledge spillover) stemming from APTS. Overall, our study suggests that public disclosure of audit firm-wide quality control deficiencies pertaining to audits of income tax accounts imposes a collateral damage to the inspected firm's non-audit tax services, thereby providing a more complete understanding of the consequences of the PCAOB's communications about quality control deficiencies in Part II reports.

Download or read book Do Analysts and Investors Fully Appreciate the Implications of Book Tax Differences for Future Earnings written by David P. Weber and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research reports that book-tax differences are not only informative about future earnings but are also associated with future stock returns. The combination of these results suggests the possibility that investors misprice securities by not fully incorporating tax-based information into their earnings expectations. However, because the stock market's expectations are not observable, predictable future returns may instead simply reflect differences in risk. I exploit financial analysts' earnings forecasts to provide evidence on these alternative explanations. I find that analysts' forecasts are more optimistically biased when book income is high relative to tax income, indicating a failure to anticipate that these firms tend to have lower future earnings. I also show that the association between book-tax differences and future returns is only present for firms with weaker information environments and disappears after controlling for analysts' forecast errors. My results suggest that neither analysts nor investors fully appreciate the information in book-tax differences, particularly in settings with weaker information environments and when analysts are less experienced. Overall the evidence is consistent with the association between book-tax differences and future returns being attributable to mispricing rather than risk.

Download or read book The Effects of Tax Aggressiveness and Complexity on Investors Preferences for Joint Provision of Tax and Audit Services written by and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Closer Examination of the Book tax Difference Pricing Anomaly written by Bradford Fitzgerald Hepfer and published by . This book was released on 2016 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, I examine whether the pricing of book-tax differences reflects mispricing or a priced risk factor. I provide new evidence that temporary book-tax differences are mispriced by developing portfolios that trade on the information in book-tax differences for future accruals and cash flows. I develop and test predictions on whether book-tax difference mispricing is the value-glamour anomaly in disguise. Both signals of mispricing relate to firm growth and, thus, both may capture mispricing due to over-extrapolation of realized growth to future growth. I find that the book-tax difference pricing anomaly is subsumed by the value-glamour anomaly. Specifically, trading on the information in book-tax differences does not yield incremental returns relative to a value-glamour trading strategy. Hence, mispricing associated with book-tax differences relates more generally to the mispricing of expected growth as extrapolated from past growth.

Download or read book The Determinants and Consequences of Tax Audits written by Clive S. Lennox and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using proprietary data obtained from a local tax office in China, we examine the determinants of corporate tax audits and the consequences of those audits. We find that the tax authority is more likely to select a firm for an audit when the firm has a lower effective tax rate, a higher book-tax difference, and more income-decreasing discretionary accruals. In addition, the tax office imposes larger tax payments on the audited firms that have lower effective tax rates, higher book-tax differences, and more income-decreasing discretionary accruals. Applying a difference-in-difference and matching research design, we find that after firms have been audited they significantly increase their effective tax rates, reduce their book-tax differences, and reduce their income-decreasing discretionary accruals. Our study provides important insights on the determinants of the tax authority's decision on whether to initiate an audit and the impact of tax audits on both tax reporting and financial reporting.

Download or read book The Study on the Relationship Between Auditor Expertise and Book Tax Differences Before and After the Passage of the Mandatory Auditor Rotation written by Laney Tsai and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The study examines the impact of mandatory auditor rotation on auditor expertise and book-tax differences using data from Taiwan, where the names of signing audit partners and audit firm are required to disclose audited financial statements. The rotation of auditor every five years became mandatory in Taiwan after 2004. The regime changes in Taiwan provide a unique setting to examine how the mandatory auditor rotation regime affects the auditor industry expertise's attitude toward their clients' tax avoidance.We divided our sample into two groups to compare the relationship between auditor expertise and book-tax differences in a regime without rotation (pre-mandatory rotation period: 1998-2003) and one with rotation (mandatory rotation period: 2004-2008). We find that auditor industry expertise has professional tax knowledge, and thus plays a critical role in their clients' tax avoidance strategies during pre-mandatory rotation period. However, we also find that the companies audited by auditor industry expertise are less likely to engage tax avoidance activities after implementing auditor mandatory rotation regime. Our results suggest that a limit on the length of the auditor-client relationship result in greater incentives for auditors to maintain independence or avoid excessive familiarity to each other, which effectively restrains firms' opportunistic tax avoidance activities. Overall, our results provide empirical support for the arguments put forward by advocates of mandatory rotation from tax avoidance perspective.

Download or read book Tax Reserves Auditor provided Tax Services and FIN 48 written by Chunlai Ye and published by . This book was released on 2012 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This study examines two types of consequences of FIN 48, the effect of FIN 48 on firm value and the effect of FIN 48 on audit fees, and shows that these consequences depend upon the size of the firm. Firm size and the role of the auditor are generally ignored in previous FIN 48-related studies. Because of different tax audit risks faced by firms of different sizes, I expect and find that FIN 48 affects firms of different sizes differently. After the adoption of FIN 48, the value relevance of tax reserves decreases for large firms but does not significantly change for medium and small firms. I also find that firms pay additional audit fees following FIN 48 and that the increase depends upon the size of the firm and the extent of tax services provided by the auditor. In addition, auditor-provided tax services mitigate the extra audit fees that firms with more tax reserves need to pay in the post-FIN 48 period.This study also investigates the effect of auditor-provided tax services on earnings management through tax reserves. I find that the auditor who provides more tax services facilitates large firms' earnings smoothing in the post-FIN 48 period, providing clear evidence of impairment of auditor independence due to tax services. This behavior does not exist within medium and small firms, arguably because the auditor does not compromise independence for less important clients.

Download or read book The Implications of Book tax Differences written by Maria Theresia Evers and published by . This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last decade, a large body of tax accounting literature on the association between book-tax conformity (BTC)/book-tax differences (BTD) and firms' opportunistic reporting behavior has emerged. Yet, existing empirical evidence on the questions whether increased book-tax conformity actually reduces Earnings Management (EM) and/or Tax Sheltering (TS) and whether book-tax differences are really indicative of such opportunistic reporting behavior is not yet clear. We therefore conduct a meta-analysis aimed at identifying the sources of heterogeneity in primary studies and at providing a consensus estimate with respect to the sign and the statistical significance level for the examined association. Our qualitative literature review reveals that major sources of heterogeneity in the study design include differences in the proxies for EM and TS and in the measures used to determine BTD and BTC. Our meta-regression results show that BTD are indeed indicative of opportunistic reporting behavior, and even more so of EM. These results are, however, weaker for studies that determine BTD only roughly as the difference between book and estimated taxable income instead of using more specific BTD proxies. Moreover, examining actual BTD computed from tax returns instead of only approximating these from financial statements strongly increases the effects. Hence, efforts taken to accurately determine BTD seem to be worth wile when it comes to the explanatory power for opportunistic reporting. Furthermore, our results suggest a negative association between book-tax conformity and EM/TS, which we interpret as an indicator for higher conformity indeed being effective in reducing aggressive reporting.

Download or read book Impact of Adopting the International Financial Reporting Standards on Book tax Differences written by Jinky Lunaspe Dagoon and published by . This book was released on 2011 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study empirically examines how the adoption of new accounting standards impacts book-tax differences (BTDs) and analyzes the role of changes in accounting rules as an important function of the book-tax income gap. The primary objective of this study is to present preliminary evidence on how the adoption of the International Financial Reporting Standards (IFRS) impacts the book-tax income gap in the case of the public firms in the Netherlands, a country with low book tax alignment. This objective is accomplished through empirical investigation of data on book-tax differences (BTDS) from a sample of Dutch firms listed in the Eupnext Amsterdam using 2004 IFRS and Dutch GAAP figures. Data are derived electronically from Compustat Global database and hand collected from annual reports available in individual company's websites.

Download or read book Auditor Provided Tax Services and Stock Price Crash Risk written by Ahsan Habib and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether auditor-provided tax services affect stock price crash risk: an important consideration for stock investors. Provision of tax services by incumbent auditors could accentuate or attenuate crash risk depending on whether such services give rise to knowledge spillover or impair auditor independence. The study investigates two channels through which tax services might affect crash risk: earnings management in tax expenses, and tax avoidance. Also examined, is whether the association between tax services and crash risk is moderated by the particular business strategy that organizations pursue. A two-stage model is used to control for the potential endogeneity inherent in the selection of auditors for tax services. Empirical findings reveal that auditor-provided tax services attenuate crash risk by constraining both earnings management in tax expenses and tax avoidance. Further evidence shows that auditor-provided tax services reduce crash risk for firms following innovator business strategies. Taken together, empirical findings reported in this study support knowledge spillover benefits, i.e. insights gained from tax services can enhance audit effectiveness.

Download or read book Empirical Evidence on the Impact of Book Tax Differences on Divergence of Opinion Among Investors written by Joseph Comprix and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well known that the objectives of financial accounting and tax accounting sometimes conflict, resulting in book-tax differences (BTDs). In this study we test for associations between measures of BTDs and measures of market participants' uncertainty regarding the information conveyed in financial reports. The measures of market participant uncertainty are: (1) share turnover, (2) analyst forecast dispersion, and (3) stock return variance. We find positive associations between levels and variability of total BTDs and the three measures. After disaggregating BTDs into their permanent and temporary components, we find that both are positively associated with market uncertainty, although the permanent component of BTDs is generally more strongly and consistently associated with measures of uncertainty than is the temporary component. We interpret these results, in part, as indicative of the possible effect of uncertainty contained in BTDs, especially permanent BTDs, on the precision of the information conveyed in the financial statements.

Download or read book Case Studies for Book Tax Differences in the Classroom written by Cherie Hennig and published by . This book was released on 2013 with total page 3 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial accounting and tax professionals today face a bewildering maze of computational, disclosure, and reporting requirements related to income tax accrual. GAAP financial statements must comply with Accounting Standards Codification (ASC) Topic 740, Income Taxes (formerly FAS 109, Accounting for Income Taxes, and FIN 48, Accounting for Uncertainty in Income Taxes), which requires accruals for the tax benefit (liability) of temporary book-tax differences and footnote disclosure of uncertain tax positions. In addition, the effective tax rate footnote must disclose the tax benefit (liability) of permanent book-tax differences. The IRS recently released Schedule UTP, Uncertain Tax Position Statement, which will also require corporate Schedule M-3 filers to provide a detailed analysis of current and prior tax year uncertain tax positions. These disclosure and reporting requirements raise questions as to how to most effectively cover book-tax differences in financial accounting and tax courses and how to prepare accounting graduates for this type of work in the profession.