Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Distilling the reserve for uncertain tax positions: the revealing case of black liquor

Distilling the reserve for uncertain tax positions: the revealing case of black liquor We examine the extent to which management discretion affects the reserve for unrecognized tax benefits. We analyze the financial statement disclosures of 19 paper companies that received a total of $6.4 billion in refundable excise taxes during 2009. All of these companies included the refunds in financial income, but 14 excluded all or part of the refunds from taxable income. Despite the magnitude and unprecedented nature of the exclusion, we find that only five of the excluding firms accrued a full reserve for an uncertain tax position, three firms accrued a partial reserve, and six firms did not accrue any reserve. This variation suggests managers enjoy wide latitude in applying the more likely than not standard for determining additions to the reserve. Our findings suggest that financial statement users should exercise caution when comparing tax reserves across companies. In addition, we find some evidence that income-increasing tax accrual decisions are related to characteristics generally associated with weak corporate governance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Distilling the reserve for uncertain tax positions: the revealing case of black liquor

Download PDF
17 pages

Loading next page...
 
/lp/springer_journal/distilling-the-reserve-for-uncertain-tax-positions-the-revealing-case-l5a81t1TSR

References (16)

Publisher
Springer Journals
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
DOI
10.1007/s11142-013-9257-4
Publisher site
See Article on Publisher Site

Abstract

We examine the extent to which management discretion affects the reserve for unrecognized tax benefits. We analyze the financial statement disclosures of 19 paper companies that received a total of $6.4 billion in refundable excise taxes during 2009. All of these companies included the refunds in financial income, but 14 excluded all or part of the refunds from taxable income. Despite the magnitude and unprecedented nature of the exclusion, we find that only five of the excluding firms accrued a full reserve for an uncertain tax position, three firms accrued a partial reserve, and six firms did not accrue any reserve. This variation suggests managers enjoy wide latitude in applying the more likely than not standard for determining additions to the reserve. Our findings suggest that financial statement users should exercise caution when comparing tax reserves across companies. In addition, we find some evidence that income-increasing tax accrual decisions are related to characteristics generally associated with weak corporate governance.

Journal

Review of Accounting Studies – Springer Journals

Published: Oct 1, 2013

There are no references for this article.