The Informativeness of FIN 48 ‘Look-Forward’ Disclosures

Dunbar, Amy E.; Omer, Thomas C.; Schultz, Thomas D.

doi:10.2139/ssrn.1633626

Cited by 11 publications

(9 citation statements)

References 17 publications

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“…It means the more profit the corporates earn, the stronger motivation of tax avoidance than the corporates earn the fewer profits (Derashid and Zhang, 2003;Dunbar et al, 2010;Kraft, 2014). It explains that shareholders are beginning to pay attention their benefits as firms become efficient and promote tax avoidance behaviors.…”

Section: The Research Resultsmentioning

confidence: 99%

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The relationship between state ownership and tax avoidance level: empirical evidence from Vietnamese firms

Nguyen¹,

Quyen²

2017

JABS

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This paper investigates the relationship between tax avoidance behavior and state-ownership level at corporates in Vietnam to find out whether state-ownership influence the tax avoidance behavior of Vietnamese firms. Effective tax rate presents for the tax avoidance level, in which higher effective tax rate means the lower tax avoidance level. In this research, the authors check robustness by using different methods to calculate the level of tax avoidance of corporates. Using Feasible Generalized Least Squares (FGLS) method with data of 460 enterprises listed on Vietnam Stock Exchange market from 2009 to 2015, the empirical result shows that the level of state ownership has an inverse relationship with tax avoidance behavior of corporates. In other words, the higher level of state-owned is, the fewer taxes they avoid. Empirical evidence also confirms that low concentration (≤ 30%) of state ownership has a positive effect on tax avoidance behavior. Besides that, size, firm performance, tangible assets level, and debt ratio have a meaningful positive relationship with the degree of tax avoidance, similarly prior studies. Contribution/ OriginalityThis study provides empirical evidence for prior theory on the relationship between corporate ownership and the manager' behavior. The study results again confirmed that there is a conflict of benefits between business executives and shareholders, by measuring the tax avoidance level of state-owned enterprises in Vietnam.

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Section: The Research Resultsmentioning

confidence: 99%

“…According to prior studies, we hypothesize that size, debt ratio, and firm performance have a positive relationship with tax avoidance behavior (see Dunbar et al, 2010;Salihu et al, 2014;Kraft, 2014;Richardson et al, 2015). It means control variables' coefficients are negative.…”

Section: Methodology and Data Sourcesmentioning

confidence: 96%

The relationship between state ownership and tax avoidance level: empirical evidence from Vietnamese firms

Nguyen¹,

Quyen²

2017

JABS

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“…We believe these criteria reflect recurring material tax uncertainty most likely to affect reported income tax expense. 5 Some empirical studies question the completeness and quality of FIN 48 disclosures (e.g.,Blouin, Gleason, Mills, and Sikes 2007;Robinson and Schmidt 2013;Dunbar, Omer, and Schultz 2010), suggesting it might be difficult to make such an adjustment to FIN 48 information. Other evidence suggests that analysts have a limited ability to process information contained in tax footnotes(Kim, Schmidt, and Wentland 2014).…”

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confidence: 99%

One Size Does Not Fit All: How the Uniform Rules of FIN 48 Affect the Relevance of Income Tax Accounting

Robinson

Stomberg

Towery³

2015

The Accounting Review

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Our study examines how the uniform rules of FIN 48, which governs accounting for income tax uncertainty, affect the relevance of income tax accounting. By requiring all firms to follow the same recognition and measurement process, the FASB intended FIN 48 to improve the relevance of income tax accounting. However, practitioners argue that reserves reported under FIN 48 lack relevance because they represent liabilities that will never be paid to tax authorities. Consistent with these concerns, we estimate that over a three-year period, only 24 cents of every dollar of reserves unwind via settlements. Moreover, contrary to the FASB's intention, we find no evidence that FIN 48 increased the ability of tax expense to predict future tax cash flows. Rather, we find that the predictive ability of tax expense for future tax cash flows decreases among firms for which FIN 48 is most restrictive. Finally, we find no evidence that investors identify firms for which reserves overstate future tax cash outflows and incorporate this into their valuations. Our results provide evidence that the uniform accounting rules of FIN 48 negatively affect the relevance of income tax accounting. JEL Classifications: H25; M41; M48.

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“…In addition, previous studies (Dunbar, Omer, & Schultz, 2010;Robinson & Schmidt, 2013) observe low compliance with FIN 48 disclosures. These aforementioned studies (i.e., Abernathy et al, 2017;De Simone et al, 2014;Dunbar et al, 2010;Robinson & Schmidt, 2013) illustrate that FIN 48 probably could not completely eliminate earnings management through tax reserves. Based on his own experience, Harvey (2011), a former IRS employee, states that an IRS audit was not effective in identifying tax issues in the pre-FIN 48 period.…”

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 88%

“…While Gupta et al (2016) study large firms only, Cazier et al (2015) cover firms of all sizes. Based on the aforementioned literature on consequences of FIN 48 (i.e., Cazier et al, 2015;De Simone et al, 2014;Dunbar et al, 2010;Gupta et al, 2016;Robinson & Schmidt, 2013) and the argument that the effect of FIN 48 varies with firm size, I specify the following hypotheses: H1: Large firms (firms with total assets of $5 billion or more) no longer manage earnings through tax reserves to meet earnings targets in the post-FIN 48 period.…”

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

Earnings Management through Tax Reserves and Auditor-Provided Tax Services

2017

AFR

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This study investigates whether firms continue to use tax reserves to achieve financial reporting objectives in the post-FIN 48 period and the effect of auditor-provided tax services on earnings management through tax reserves. Three types of earnings management incentives are considered in this study: meeting or beating the consensus forecasts, income smoothing, and taking an "earnings bath." The analyses yield evidence that only non-large firms manipulate tax reserves to meet/beat earnings forecast in the post-FIN 48 period; however, tax reserves are still utilized by both large and non-large firms to smooth earnings. Moreover, evidence is provided that the auditor who provides more tax services facilitates large firms' earnings smoothing in the post-FIN 48 period, implying independence impairment. But this behavior does not exist within non-large firms, arguably because the auditor does not compromise independence for less important clients.

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The Informativeness of FIN 48 ‘Look-Forward’ Disclosures

Cited by 11 publications

References 17 publications

The relationship between state ownership and tax avoidance level: empirical evidence from Vietnamese firms

The relationship between state ownership and tax avoidance level: empirical evidence from Vietnamese firms

One Size Does Not Fit All: How the Uniform Rules of FIN 48 Affect the Relevance of Income Tax Accounting

Earnings Management through Tax Reserves and Auditor-Provided Tax Services

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