Financial reporting, tax costs, and book-tax conformity

Financial reporting, tax costs, and book-tax conformity We investigate the role of book-tax conformity in firms' financial reporting activities using a unique set of publicly traded firms that were forced to switch for tax purposes from the cash method to the accrual method. Prior to the mandated change, little trade-off existed between tax planning and financial reporting goals for these firms. After the change, recognition criteria for tax and financial reporting purposes became more alike, increasing the trade-off between financial reporting and tax objectives. Our results suggest that required use of the accrual method for tax purposes causes firms to defer income for financial statement purposes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Financial reporting, tax costs, and book-tax conformity

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Publisher
Elsevier
Copyright
Copyright © 1997 Elsevier Ltd
ISSN
0165-4101
DOI
10.1016/S0165-4101(97)00009-8
Publisher site
See Article on Publisher Site

Abstract

We investigate the role of book-tax conformity in firms' financial reporting activities using a unique set of publicly traded firms that were forced to switch for tax purposes from the cash method to the accrual method. Prior to the mandated change, little trade-off existed between tax planning and financial reporting goals for these firms. After the change, recognition criteria for tax and financial reporting purposes became more alike, increasing the trade-off between financial reporting and tax objectives. Our results suggest that required use of the accrual method for tax purposes causes firms to defer income for financial statement purposes.

Journal

Journal of Accounting and EconomicsElsevier

Published: Nov 1, 1997

References

  • The jointness of audit fees and demand for MAS: A self-selection analysis
    Abdel-khalik, A.
  • Managing interacting accounting measures to meet multiple objectives: A study of LIFO firms
    Hunt, A.; Moyer, S.; Shevlin, T.

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