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

2013 ◽  
Vol 88 (4) ◽  
pp. 1357-1383 ◽  
Author(s):  
Rick C. Laux
Keyword(s):  
Data Availability ◽  
Deferred Taxes ◽  
Taxable Income ◽  
Deferred Tax Assets ◽  
Incremental Information ◽  
Theoretical Predictions ◽  
Tax Payments ◽  
Deferred Tax ◽  
The Relationship

ABSTRACT This study empirically examines whether deferred taxes provide incremental information about future tax payments and explores whether the relationship is affected by whether and when the deferred tax accounts reverse. The analysis provides evidence that while deferred taxes do provide incremental information about future tax payments, the magnitude of the information is small. Further, consistent with theoretical predictions (Guenther and Sansing 2000, 2004; Dotan 2003) the analysis demonstrates there is an asymmetrical association between deferred taxes and future tax payments. For instance, deferred taxes associated with temporary differences that are included in GAAP income prior to taxable income are associated with future tax payments. In contrast, deferred taxes associated with temporary differences that are included in GAAP income after taxable income are not associated with future tax payments. Finally, the analysis provides evidence that growth in the deferred tax balances does not defer future tax payments. Data Availability: The data are available from public sources.

Do Stock-Based Compensation Deferred Tax Assets Provide Incremental Information about Future Tax Payments?

2015 ◽  
Vol 38 (1) ◽  
pp. 79-102 ◽  
Author(s):  
Derek Johnston ◽  
Lisa Kutcher
Keyword(s):  
Stock Options ◽  
Cash Flows ◽  
Employee Stock Options ◽  
Negatively Associated ◽  
Deferred Tax Assets ◽  
Incremental Information ◽  
Restricted Stock ◽  
Tax Payments ◽  
Deferred Tax ◽  
Jel Classifications

ABSTRACT We explore whether an accounting treatment similar to that required under IFRS improves the ability of the stock-based compensation component of deferred tax assets to predict future tax payments, relative to U.S. GAAP. Using hand-collected data for S&P 500 firms, we estimate the deferred tax assets related to employee stock options (ESOs) and restricted stock units (RSUs). We find that the RSU deferred tax asset is negatively related to future cash tax payments, while we fail to find that the ESO deferred tax asset is. However, after reducing the ESO and RSU deferred tax assets by their corresponding estimated impairments, we find that both variables are negatively associated with future tax payments. Additional analysis provides evidence that supports the conjecture that using a revaluation approach to account for stock-based compensation deferred tax assets may be more useful in predicting future tax cash flows, relative to current U.S. GAAP. JEL Classifications: H25; M41.

Incremental Value Relevance of Unrecognized Deferred Taxes: Evidence from the United Kingdom

2008 ◽  
Vol 30 (2) ◽  
pp. 107-130 ◽  
Author(s):  
Stephen Gregory Lynn ◽  
Chandra Seethamraju ◽  
Ananth Seetharaman
Keyword(s):  
Value Relevance ◽  
Weighted Least Squares ◽  
Annual Reports ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
Share Prices ◽  
The United Kingdom ◽  
Incremental Value ◽  
Theoretical Predictions ◽  
Deferred Tax

ABSTRACT: We examine empirically whether the use of the partial method for deferred taxes provides incremental information of use to investors. Specifically, we test whether U.K. capital markets valued unrecognized deferred tax amounts reported in the footnotes to U.K. annual reports, pursuant to U.K. Statement of Standard Accounting Practice (SSAP) No. 15 (ASB 1985). Our empirical model is based on Feltham and Ohlson (1995). We run iterative weighted least-squares (IWLS) regression of year-end share prices on a decomposition of book value per share for a pooled sample of U.K. firm-years drawn from the years 1993 through 1998, and find positive associations with price for net deferred tax assets—both recognized and unrecognized. Moreover, we are unable to reject the null hypothesis that both parts of deferred taxes have similar multiples in our price regressions. These findings support some theoretical predictions in Sansing (1998), Guenther and Sansing (2000, 2004), and Amir et al. (2001).

The Deferred Tax Asset Valuation Allowance and Firm Creditworthiness

2017 ◽  
Vol 40 (1) ◽  
pp. 57-80 ◽  
Author(s):  
Alexander Edwards
Keyword(s):  
Data Availability ◽  
Management Tool ◽  
Asset Valuation ◽  
Taxable Income ◽  
Deferred Tax Assets ◽  
Valuation Allowance ◽  
Conservative Accounting ◽  
The Future ◽  
Tax Savings ◽  
Deferred Tax

ABSTRACT In this study, I provide evidence that the valuation allowance for deferred tax assets helps predict the future creditworthiness of a firm. Under the provisions of SFAS No. 109, a firm records a deferred tax asset provided it expects to generate sufficient taxable income to realize the asset in the form of tax savings in the future. If a firm does not expect to generate sufficient taxable income to realize the asset, then a valuation allowance is created to reduce the balance. As a result, the valuation allowance indicates management's expectation of future taxable income, which could be informative in predicting the ability of the firm to make future interest and principal payments on debt. Alternatively, the valuation allowance may not be informative regarding creditworthiness if it is a result of overly conservative accounting practices or if it is used as an earnings management tool. I document a negative association between material increases in the valuation allowance and contemporaneous and future changes in credit ratings, evidence that is consistent with the valuation allowance providing a summary measure of a decline in firms' creditworthiness. JEL Classifications: G29; H25; M41. Data Availability: Data are available from sources identified in the paper.

The Influence of Tax and Nontax Factors on Banks' Choice of Organizational Form

2003 ◽  
Vol 78 (1) ◽  
pp. 297-325 ◽  
Author(s):  
Leslie Hodder ◽  
Mary Lea McAnally ◽  
Connie D. Weaver
Keyword(s):  
Equity Capital ◽  
Income Taxes ◽  
Regulatory Capital ◽  
Strategic Choices ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
State Income ◽  
Deferred Tax ◽  
Tax Loss ◽  
First Time

This paper identifies tax and nontax factors that influence commercial banks' conversion from taxable C-corporation to nontaxable S-corporation from 1997 to 1999, after a 1996 tax-law change allowed banks to convert to S-corporations for the first time. We find that banks are more likely to convert when conversion saves dividend taxes, avoids alternative minimum taxes, and minimizes state income taxes. Banks are less likely to convert when conversion restricts access to equity capital, nullifies corporate tax loss carryforwards, and creates potential penalty taxes on unrealized gains existing at the conversion date. Banks with significant deferred tax assets are less likely to convert, presumably because the write-off of deferred taxes at conversion decreases regulatory capital and exposes the bank to costly regulatory intervention. We also investigate the strategic choices banks make before converting to S-corporations. Converting banks alter their capital structures, deliberately sell appreciated assets, and strategically set dividends to augment net conversion benefits.

scholarly journals Earnings Management Through Deferred Taxes Recognized Under IAS 12: Evidence From Pakistan

2014 ◽  
Vol 3 (1) ◽  
pp. 1-19
Author(s):  
Abdul Rafay Abdul Rafay ◽  
Mobeen Ajmal
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Relevant Information ◽  
Cash Flows ◽  
Deferred Taxes ◽  
Deferred Tax Assets ◽  
Operational Activities ◽  
Deferred Tax ◽  
Relevant Component

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 nonvalue-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.

ACCOUNTING OF DEFERRED TAX ASSETS AND LIABILITIES: HISTORICAL EXCURSION AND MODERN REALITIES

2021 ◽  
Author(s):  
Ольга Височан ◽  
Тетяна Івасюк
Keyword(s):  
Income Tax ◽  
Historical Context ◽  
Current Position ◽  
Deferred Taxes ◽  
Accounting Standard ◽  
Deferred Tax Assets ◽  
Deferred Tax ◽  
Historical Methods ◽  
Algorithmic Process ◽  
Methodological Difficulties

The article considers the essence of deferred tax assets and liabilities and their reflection in the system of accounts and registers in the historical context. The periodization of the process of formation and development of the problem of deferred taxes in Ukraine with the use of normative and historical methods of cognition is carried out. The differences between permanent and temporary differences in tax profit (loss) and accounting profit (loss) are described. The approach to accounting for deferred taxes and their place in the reporting of enterprises using an algorithmic process is generalized. A detailed description of the current position of accounting for deferred taxes through the viewpoint of Ukrainian accounting standard 17 "Income Tax". Conclusions are made on the possibility of further research on the elimination of methodological difficulties in the allocation of certain tax differences to temporary or permanent.

scholarly journals PENGARUH AKTIVA PAJAK TANGGUHAN TERHADAP MANAJEMEN LABA PERUSAHAAN INDUSTRI MANUFAKTUR BASIC INDUSTRI YANG TERDAFTAR DI BURSA EFEK INDONESIA

2017 ◽  
Vol 3 (3) ◽  
pp. 253-257
Author(s):  
DINI ONASIS ◽  
AFVAN AQUINO
Keyword(s):  
Earnings Management ◽  
Earning Management ◽  
Taxable Income ◽  
Deferred Tax Assets ◽  
The Future ◽  
Size Growth ◽  
Tax Benefits ◽  
The Difference ◽  
Deferred Tax ◽  
Opportunistic Management

Agent conflicts that result in opportunistic management that will result in reported earnings, which will cause the company's value to decrease in the future. Deferred tax assets occur when accounting income is less than fiscal profit due to temporary differences. The smaller accounting earnings than the fiscal profit resulted in the company being able to postpone taxes in the future period. However, if the fiscal profit may not be available in sufficient quantities to be compensated with the balance of the tax loss carry forward, or where possible the realization of future tax benefits with a probability of less than 50 per cent, deferred tax assets are not recognized and the company will record the reserves Deferred tax assets. Other problems also arise when the company has a large accounting income (Book Income) in comparison with the fiscal (Taxable Income) earnings in the financial statements. Problems in these conditions include companies, especially companies that have Go Public on its management will conduct earnings management as a fraud (fraud) relation in tax payment or reporting tax payable on the company. Companies that have a higher account income (Income Income) than a fiscal profit (Taxable Income) tendency to manage earnings at the company will be high in order to avoid large tax payments. This research is feasible to find empirical evidence whether the ownership of the deferred tax of the company or the difference between the Company's Book Income and Taxable Income affects Profit Management. The results of the research found that Deferred Tax Assets did not affect the Earning Management, Size did not affect the Earning Management, Growth (growth) did not affect the Earning Management, Leverage has no effect on Earning Management, Simultaneously Deferred Tax Assets, Size, Growth and Leverage Has no effect on earnings management for basic manufacturing industries for 2014 and 2015. Keyword: Deferred Tax Asset, Profit Management (Earning Management), Size, Growth, Leverage.

scholarly journals The Effect of the Adoption of International Accounting Standards No. 12 (IAS No.12) for Firms Reporting Losses: Evidence from Korea

2019 ◽  
Vol 11 (20) ◽  
pp. 5732
Author(s):  
Hong ◽  
Shim
Keyword(s):  
Accounting Standards ◽  
Income Taxes ◽  
Good News ◽  
International Accounting ◽  
International Accounting Standards ◽  
Deferred Tax Assets ◽  
Listed Firms ◽  
Incremental Information ◽  
Deferred Tax ◽  
Accounting For Income Taxes

This study examines the effects of the adoption of International Accounting Standards No. 12, Income Taxes (IAS No.12) on the incremental information about future profitability for firms reporting losses compared to Korean Generally Accepted Accounting No.16, Accounting for Income Taxes (K-GAAP No.16). Specifically, this paper shows that whether the IAS No.12 affects the information of deferred tax assets (DTAs) regarding loss persistence which implies the ability to predict earnings sustainability. Using a sample of 2,905 observations from Korean listed firms that reported a loss between 2007 and 2014, we divide loss firm-years into categories of ‘good news’ (GN) or ‘bad news’ (BN) based on whether management appears to report an increase in DTAs. We find that our tax categories have incremental information about the probability of loss reversal under K-GAAP No. 16, but under IAS No.12 the incremental effects of a deferred tax balance disappear. Also, we find that investors underweight the informativeness of DTAs under K-GAAP, and after the adoption of IAS No.12, investors cannot obtain buy-and-hold returns by buying GN firm-years and selling BN firms-years. However, this is not because investors understand the information of DTAs, but because the informativeness of DTAs deteriorates after the relaxation in the recognition threshold of DTAs.

The Information Content of Tax Loss Carryforwards Before and During the Global Financial Crisis

2018 ◽  
pp. 91-107
Author(s):  
Chytis Evangelos ◽  
Filos Ioannis ◽  
Gkouma Olympia
Keyword(s):  
Financial Crisis ◽  
Banking Sector ◽  
Global Financial Crisis ◽  
Telecommunications Industry ◽  
Deferred Tax Assets ◽  
Before And After ◽  
Tax Payments ◽  
Deferred Tax ◽  
The Global Financial Crisis ◽  
Tax Loss

Tax loss carryforwards are a valuable asset because they usually reduce a company's future tax payments. This chapter investigates the importance of deferred tax assets from tax loss carryforwards (DTA_TLC) by sector and index (FTSE/ASE) for the period before and after the outbreak of the financial crisis (2005-2012). In the non-banking industry, the DTA_TLC cover on average half (1/2) of the total deferred tax assets (DTAs) and one-fifth (1/5) of income before taxes (IBT). The telecommunications industry accounts for the largest DTA_TLC components, while the chemicals sector for the smallest. On average, the companies listed in the FTSE/ASE 20 report DTA_TLC five times larger than those of the FTSE/ASE 40. In the banking sector, until 2009 DTA_TLC constituted a small part of total assets and IBT. In contrast, after 2010, DTAs include significant components of DTA_TLC, as a consequence of the private sector involvement (PSI) and the financial crisis.

Sign in / Sign up

Export Citation Format

Share Document