Download or read book Tax Implications of Earnings Management Activities written by Brad A. Badertscher and published by . This book was released on 2014 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the tax implications of pretax earnings management. Prior research has examined pretax earnings management activities that have current income tax consequences (book-tax 'conforming earnings management') and earnings management activities that do not have current income tax consequences (book-tax 'nonconforming earnings management'). Our study investigates the prevalence of, and firm-specific characteristics that impact the choice between, these earnings management strategies. This investigation leads to a better understanding of the book-tax trade-offs managers face when managing earnings upward.We utilize a sample of firms that restated their earnings downward due to accounting irregularities and thus can be presumed to have managed their earnings upward. We find that nonconforming earnings management is more prevalent than conforming earnings management. Using the Heckman (1979) two-step estimation approach to control for sample selection bias, we predict and find that firms trade off the net present value of tax benefits against the net expected detection costs associated with nonconforming earnings management. In particular, the presence of NOL carryforwards, high free cash flow, a Big 4/5/6 auditor, or fraud mitigate the general reliance on nonconforming earnings management strategies.

Download or read book The Routledge Companion to Auditing written by David Hay and published by Routledge. This book was released on 2014-09-15 with total page 387 pages. Available in PDF, EPUB and Kindle. Book excerpt: Auditing has been a subject of some controversy, and there have been repeated attempts at reforming its practice globally. This comprehensive companion surveys the state of the discipline, including emerging and cutting-edge trends. It covers the most important and controversial issues, including auditing ethics, auditor independence, social and environmental accounting as well as the future of the field. This handbook is vital reading for legislators, regulators, professionals, commentators, students and researchers involved with auditing and accounting. The collection will also prove an ideal starting place for researchers from other fields looking to break into this vital subject.

Download or read book Earnings Management Strategies and the Trade Off Between Tax Benefits and Detection Risk written by Brad A. Badertscher and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior research has separately examined pretax earnings management activities that have current taxable income consequences (book-tax 'conforming earnings management') and those that do not have current taxable income consequences (book-tax 'nonconforming earnings management'). Our study documents the prevalence of, and then investigates the firm-specific characteristics that impact the choice between, these earnings management strategies. We utilize a sample of firms that restated their earnings downward due to accounting irregularities and thus can be presumed to have managed earnings upward. We find that nonconforming earnings management is more prevalent and that firms trade off the net present value of tax benefits against the net expected detection costs associated with nonconforming earnings management. In particular, firms having NOL carryforwards, using a high quality auditor, or engaging in the most egregious misstatements rely less on nonconforming earnings management strategies. We also find that book-tax differences are useful in predicting restatements.

Download or read book Evidence on the Tradeoff Between Real Manipulation and Accrual Manipulation to 25 Pages 26 to 50 Pages 51 to 75 Pages 76 to 100 Pages 101 to 120 written by Amy Yunzhi Zang and published by ProQuest. This book was released on 2000 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Introduction to Earnings Management written by Malek El Diri and published by Springer. This book was released on 2017-08-20 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.

Download or read book Accounting for Income Taxes written by John R. Graham and published by Now Pub. This book was released on 2012-11-09 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting for Income Taxes is the most comprehensive review of AFIT research. It is designed both to introduce new scholars to this field and to encourage active researchers to expand frontiers related to accounting for income taxes. Accounting for Income Taxes includes both a primer about the rules governing AFIT (Sections 3-4) and a review of the scholarly studies in the field (Sections 5-8). The primer uses accessible examples and clear language to express essential AFIT rules and institutional features. Section 3 reviews the basic rules and institutional details governing AFIT. Section 4 discusses ways that researchers, policymakers, and other interested parties can use the tax information in financial statements to better approximate information in the tax return. The second half of the monograph reviews the extant scholarly studies by splitting the research literature into four topics: earnings management, the association between book-tax differences and earnings characteristics, the equity market pricing of information in the tax accounts, and book-tax conformity. Section 5 focuses on the use of the tax accounts to manage earnings through the valuation allowance, the income tax contingency, and permanently reinvested foreign earnings. Section 6 discusses the association between book-tax differences and earnings characteristics, namely earnings growth and earnings persistence. Section 7 explores how tax information is reflected in share prices. Section 8 reviews the increased alignment of accounting for book purposes and tax purposes. The remainder of the paper focuses on topics of general interest in the economics and econometric literatures. Section 9 highlights some issues of general importance including a theoretical framework to interpret and guide empirical AFIT studies, the disaggregated components of book-tax differences and research opportunities as the U.S. moves toward International Financial Reporting Standards (IFRS). Section 10 discusses econometric weaknesses that are common in AFIT research and proposes ways to mitigate their deleterious effects.

Download or read book Decomposing Changes in Deferred Tax Assets and Liabilities to Isolate Earnings Management Activities written by John D. Phillips and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 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 firms' income tax footnote disclosures. We establish the incremental usefulness of the change in net deferred tax liabilities (DTLs) in detecting earnings management to avoid an earnings decline, and then decompose the total change in net DTLs into eight components to determine which types of accounts are associated with earnings management activities. Our evidence indicates that firms use revenue and expense accruals and reserves and other asset valuation accruals to manage earnings upwards. 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. We find that both sub-samples manage revenue and expense accruals and reserves to report earnings increases; however, only firm-years with a positive change in net DTL also reflect the use of the deferred tax asset valuation allowance account to manage earnings upward, and only firm-years with a negative change in net DTL also manage earnings upward using other asset valuation accruals.

Download or read book Corporate Tax Shelters written by United States. Congress. House. Committee on Ways and Means and published by . This book was released on 2001 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?

Download or read book Taxes and Business Strategy written by Myron S. Scholes and published by . This book was released on 2015-01-03 with total page 528 pages. Available in PDF, EPUB and Kindle. Book excerpt: For MBA students and graduates embarking on careers in investment banking, corporate finance, strategy consulting, money management, or venture capital Through integration with traditional MBA topics, Taxes and Business Strategy, Fifth Edition provides a framework for understanding how taxes affect decision-making, asset prices, equilibrium returns, and the financial and operational structure of firms. Teaching and Learning Experience This program presents a better teaching and learning experience-for you and your students: *Use a text from an active author team: All 5 authors actively teach the tax and business strategy course and provide students with relevant examples from both classroom and real-world consulting experience. *Teach students the practical uses for business strategy: Students learn important concepts that can be applied to their own lives. *Reinforce learning by using in-depth analysis: Analysis and explanatory material help students understand, think about, and retain information.

Download or read book Multidrivers for Earnings Management written by Cinthia Valle Ruiz and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Accounting financial information is a relevant element in business to measure and to communicate business performance (Watts & Zimmermann, 1986). External decision makers as stockholders, analysts, external auditors or investors need information about business activities to make their decisions or to provide an opinion about companies’ performance. In a similar venue, internal decision makers, as managers, need also useful information to manage firm’s activities. Thus, financial statements must provide useful information about companies’ financial situation to facilitate stakeholders’ decision making (Epstein & Jermakowicz, 2008; Mackenzi et al, 2012). However, the presence of significant earnings management originated from information asymmetry and agency problems could affect such features and their effects could be noted in the firm, in the organizational field and societies in general (Cooper, Dacin & Palmer, 2013). Previous studies have shown varying incentives that drive managers to manipulate the results of the company. On one hand, internal motivations for earnings management can be grouped into three categories: 1) contracting motivations, compensation and lending contracts, 2) capital market motivation, and 3) type of company...

Download or read book The Impact of Earnings Management and Tax Planning on the Information Content of Earnings written by Linda H. Chen and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effect of tax planning and earnings management on the relative 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 relative informativeness of book and taxable income and (2) the relation between voluntary conformity and the relative informativeness of book and taxable income. Based on these two sets of tests, we conclude that tax planning and earnings quality jointly affect the relative informativeness of book and taxable income.

Download or read book Earnings Management Through Effective Tax Rates written by Kirsten A. Cook and published by . This book was released on 2008 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Dhaliwal, Gleason, and Mills (DGM 2004) document that firms manage earnings through decreases in effective tax rates (ETRs) between the third and fourth quarters. We investigate how firms' investments in tax planning impact this association between ETR changes and earnings management incentives. We also study two additional questions related to this association. First, we examine the impact of firms' choices to purchase tax services from providers other than their auditors on their use of third-to-fourth-quarter ETR changes. Second, we explore whether the Sarbanes-Oxley Act of 2002 (SOX) altered firms' propensity to engage in earnings management using changes in ETRs. For firms that would miss consensus earnings forecasts in the absence of ETR changes, higher tax service fees paid to auditors are associated with greater reductions in ETRs between the third and fourth quarters. Among firms that do not purchase tax services from their auditors, companies that would miss their earnings forecasts absent ETR changes also experience greater third-to-fourth-quarter reductions in ETRs than companies that would otherwise meet or beat these estimates. We find no statistically significant impact of the passage of SOX on the relation between tax fees paid to auditors and third-to-fourth-quarter decreases in ETRs for firms that would miss their earnings targets without managing tax expense. However, for firms not purchasing tax services from their auditors, a negative association exists between third-to-fourth-quarter ETR changes and missing income goals absent ETR changes in the pre-SOX period, but our tests fail to detect this relation in the post-SOX period.

Download or read book Income Tax Treatment of Cooperatives Handling of losses written by Donald A. Frederick and published by . This book was released on 1993 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Earnings Management and its Pricing Implications written by Catherine M. Schrand and published by . This book was released on 2011 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: SFAS 109, Accounting for income taxes, was criticized for allowing firms to set arbitrarily high valuation allowances against deferred tax assets at adoption as quot;hidden reservesquot; that firms could use in future periods to manage earnings. Consistent with these claims, bank managers make discretionary decreases in the valuation allowance, which represents an increase in earnings, when earnings before adjustment are below the consensus analyst forecast. The magnitude of the discretionary adjustment increases in the deviation from forecast. Abnormal returns around the 10-K filing date suggest that the market attributes value to these discretionary earnings even though they presumably have no direct cash flow implications. However, additional tests indicate that the association between returns and discretionary changes in the valuation allowance are related to reductions in earnings volatility which provide indirect, but real, cash flow benefits in the regulated banking industry.

Download or read book Earnings Management Through Deferred Taxes Recognized Under IAS 12 written by Abdul Rafay and published by . This book was released on 2015 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 non value-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.

Download or read book Farmer s Tax Guide written by and published by . This book was released on 1998 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: