The Association between Deferred Tax Assets and Liabilities and Future Tax Payments

Laux, Rick

doi:10.2139/ssrn.1859633

Cited by 15 publications

(63 citation statements)

References 0 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…They attribute this result to the detailed tax note disclosures being too complicated and distant from the more prominent financial statements. 6 In contrast with evidence that market participants do not fully use tax note disclosures, Laux (2013) finds that tax note disclosures of deferred tax assets and liabilities provide incremental information about future tax payments that inform investors' decisions. Laux (2013) ran cross-sectional regressions of both future tax payments and market value of equity on the components of deferred taxes and various controls.…”

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

“…6 In contrast with evidence that market participants do not fully use tax note disclosures, Laux (2013) finds that tax note disclosures of deferred tax assets and liabilities provide incremental information about future tax payments that inform investors' decisions. Laux (2013) ran cross-sectional regressions of both future tax payments and market value of equity on the components of deferred taxes and various controls. Consistent with the theoretical predictions of Sansing (2000, 2004) and Dotan (2003), the results suggest that revenues and expenses included in GAAP income prior to taxable income provide forward-looking information about future tax payments to market participants.…”

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

“…The specific component of a tax note that we consider is deferred tax assets arising from the recognition of carry-forward losses. Using the rationale of Laux (2013), these tax deferrals are likely to be informative since they are included in GAAP income prior to taxable income. In particular, recognition of these assets may convey information about the quality of reported earnings (Herbohn et al, 2010), 7 or provide a signal of future profitability to the market (Amir and Sougiannis, 1999;De Waegenaere et al, 2003;Zeng, 2003;Chang et al, 2009).…”

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

See 2 more Smart Citations

The Market Response to Beating After‐tax Earnings Targets Revisited using Analysts’ Pre‐tax Earnings Forecasts and Concurrent Tax Note Disclosures

Herbohn

Tutticci²,

Tan³

2016

Business Fin & Account

View full text Add to dashboard Cite

We investigate whether the premium for achieving after‐tax earnings targets is informed by the availability of pre‐tax and after‐tax earnings forecasts. We find evidence the premium is discounted for firms achieving only after‐tax earnings forecasts compared with firms achieving both forecast targets. This is likely due to the uncertainty about future profitability and earnings quality created by failing to attain pre‐tax earnings targets. For firms achieving only pre‐tax earnings forecasts, no premium is documented. Taken together, our results indicate that while pre‐tax earnings forecasts may not move the market, they have an informational role in providing a context for assessing the achievement of after‐tax earnings targets. We also consider the usefulness of the tax note disclosures of deferred tax assets from carry‐forward losses for assessing the premium for achieving after‐tax earnings targets. Reflecting the duality of this tax deferral, we find evidence that recognition of these tax assets conveys information about lower earnings quality when recognition is likely to be opportunistic (in the case of firms achieving only after‐tax forecasts), and provides a signal of future profitability (in the case of firms achieving only pre‐tax forecasts).

show abstract

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

Section: (Iv) Revisiting the Market Response To Achievement Of After-mentioning

confidence: 99%

See 1 more Smart Citation

The Market Response to Beating After‐tax Earnings Targets Revisited using Analysts’ Pre‐tax Earnings Forecasts and Concurrent Tax Note Disclosures

Herbohn

Tutticci²,

Tan³

2016

Business Fin & Account

View full text Add to dashboard Cite

show abstract

“…Furthermore, the various exceptions in the standard, such as the initial recognition exception, indicate that the purpose of deferred taxes is primarily to match the income tax effect in the income statement to the profit before tax as determined under IFRS rather than to recognise assets and liabilities that meet the definition of the CF. The comprehensive interperiod income tax allocation model behind IAS 12 has been subject to debate and analysis by various academics; see, for instance, Chambers (1968), Barton (1970) and Buckley (1972) prior to the issuance of the orginal IAS 12 and the CF, and therafter Guenther and Sansing (2000) and Laux (2013). In the light of the definitions of an asset and a liability, it is interesting to see that many analyses and discussions continue to focus on the question whether it would be appropriate to apply a matching principle to income taxes.…”

Section: Employee Benefits (Ias 19 Ifrs 2)mentioning

confidence: 99%

“…e According to the IASB, deferred tax assets and liabilities meet the definition of assets and liabilities. However, some academics conclude that, at best, only a subset of deferred taxes meets the definition (for instance, see Loftus 2003 andLaux 2013). deferred revenues) or matching items (certain deferred tax liabilities) rather than meeting the definitions of asset or liability.…”

Section: Analysis Of the Impact Of The Proposed Changesmentioning

confidence: 99%

Will the changes proposed to the conceptual framework's definitions and recognition criteria provide a better basis for IASB standard setting?

Brouwer

Hoogendoorn

Naarding

2015

Accounting and Business Research

View full text Add to dashboard Cite

In this paper we evaluate the International Accounting Standards Board's (IASB) efforts, in a discussion paper (DP) of 2013, to develop a new conceptual framework (CF) in the light of its stated ambition to establish a robust and consistent basis for future standard setting, thereby guiding standard setting decisions in complex and controversial areas. We investigate the impact of the definitions and recognition criteria for assets and liabilities in the existing CF and the DP. We conclude that, in areas where standards have diverged from the CF in the past, that is, not consistently applying probability thresholds, the DP supports the existing standards by removing those thresholds. Furthermore, the DP includes the more judgemental criteria of relevance and faithful representation to determine whether an item should be recognised as an asset or liability. This would justify those existing standards which currently do not recognise items that meet the (current and revised) definitions of asset or liability. Altogether, we conclude that the development of IFRSs will continue to be the outcome of professional debate, negotiation, consensus seeking and political influence. We therefore recommend that additional measures should be taken by the IASB to ensure coherence in the development and application of standards after implementation of a new CF.

show abstract

Deferred taxation under default risk

Carini

Moretto

Panteghini

et al. 2019

J Econ

View full text Add to dashboard Cite

In this article, we have used a continuous EBIT-based model to study deferred taxation under default risk. Quite surprisingly, default risk has been disregarded in research on deferred taxation. In order to underline its importance, we first calculated the probability of default, over a given time period, together with the contingent value of tax deferral. We then applied our theoretical model to a sample of 27,749 OECD companies. We showed that, when accounting for both firms with a negative EBIT and firms with a probability of default higher than 50% (over a 10-year period), a relevant percentage of firms were close enough to default. Hence, these taxpayers should not consider deferred taxation in their financial statements, for the sake of prudence. Moreover, under default, the expected present value of deferred taxes was much lower than that obtained in a deterministic context. Hence, if we look at deferred taxes from the Government's point of view, we must consider them as being risk-free loans. However, only a portion are subsequently repaid, due to default. This implies that, when a Government allows accelerated tax depreciation it should be aware of future losses due to default. So far, these estimates have been missing, although techniques do exist and are quite practical. JEL-Codes: H250, M410.

show abstract

The Association between Deferred Tax Assets and Liabilities and Future Tax Payments

Cited by 15 publications

References 0 publications

The Market Response to Beating After‐tax Earnings Targets Revisited using Analysts’ Pre‐tax Earnings Forecasts and Concurrent Tax Note Disclosures

The Market Response to Beating After‐tax Earnings Targets Revisited using Analysts’ Pre‐tax Earnings Forecasts and Concurrent Tax Note Disclosures

Will the changes proposed to the conceptual framework's definitions and recognition criteria provide a better basis for IASB standard setting?

Deferred taxation under default risk

Contact Info

Product

Resources

About