Balancing Tax and Financial Reporting Objectives: Effective Tax Planning within the Property and Casualty Insurance Industry

2007 ◽  
Vol 22 (2) ◽  
pp. 285-318
Author(s):  
David W. Randolph ◽  
Jim A. Seida
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Insurance Industry ◽  
Tax Planning ◽  
Ethical Considerations ◽  
Loss Reserve ◽  
Reporting Decisions ◽  
Tax Benefits ◽  
Alternative Sources ◽  
Joint Consideration

Tax-planning strategies will not enhance firm value if the tax benefit is less than the (nontax) costs incurred to achieve such benefit. Effective tax planning therefore requires the joint consideration of tax benefits and the costs of obtaining those benefits, rather than a myopic focus on only tax minimization. This case presents the opportunity for you to evaluate alternative sources of tax law and balance tax and nontax concerns (including ethical considerations) as you make the same loss reserve reporting decisions that property-casualty (P&C) insurers faced following the Tax Reform Act of 1986 (TRA86).

The Influence of Auditor State-Level Legal Liability on Conservative Financial Reporting in the Property-Casualty Insurance Industry

2012 ◽  
Vol 31 (3) ◽  
pp. 95-124 ◽  
Author(s):  
Jennifer J. Gaver ◽  
Jeffrey S. Paterson ◽  
Carl J. Pacini
Keyword(s):  
Financial Reporting ◽  
Insurance Industry ◽  
State Level ◽  
Third Party ◽  
Forum Shopping ◽  
Legal Concept ◽  
Auditor Liability ◽  
Loss Reserve ◽  
Legal Costs ◽  
Liability Standards

SUMMARY This paper provides the first evidence that state-level liability standards affect auditor behavior. We hypothesize that auditors demand more conservative reporting when their insurance clients are domiciled in states with more stringent standards for third-party claims against the auditor for negligence. To test this hypothesis, we analyze a sample of 3,107 loss reserve observations from 1993 through 2004. Our sample is restricted to private insurers that operate in a single state to control for auditor liability under statutory law and to reduce the possibility of forum shopping by plaintiffs. Consistent with Petroni (1992), we find that financially struggling insurers tend to under-reserve. This behavior is attenuated when the insurer is domiciled in a state that uses either the Restatement of Torts or the reasonable foreseeability standard to determine the auditor's liability to third parties. Compared to the case where the auditor's liability is defined by the legal concept of privity, these standards impose greater legal costs on auditors for ordinary negligence. JEL Classifications: M41; M42; G22; K13.

Unintended Consequences of Linking Tax Return Disclosures to Financial Reporting for Income Taxes: Evidence from Schedule UTP

2017 ◽  
Vol 92 (5) ◽  
pp. 201-226 ◽  
Author(s):  
Erin M. Towery
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Multinational Firms ◽  
Unintended Consequences ◽  
Income Taxes ◽  
Unintended Effects ◽  
Reporting Requirements ◽  
Reporting Decisions ◽  
Tax Returns ◽  
Tax Benefits

ABSTRACT This study exploits the implementation of IRS Schedule UTP to examine how linking tax return disclosures to financial reporting for income taxes affects firms' reporting decisions. Using confidential tax return data and public financial statement data, I find that after imposition of Schedule UTP reporting requirements, firms report lower financial reporting reserves for uncertain income tax positions, but do not claim fewer income tax benefits on their federal tax returns. The reduction in reserves is concentrated among multinational firms and firms with larger reserves prior to Schedule UTP. These findings suggest that some firms changed their financial reporting for uncertain tax positions to avoid Schedule UTP reporting requirements without changing the underlying positions. In contrast with prior studies, this evidence represents a permanent, rather than a temporary, tax-induced reporting change. My results imply that linking tax return disclosures to financial reporting can have unintended effects on firms' reporting decisions.

Peran kepemilikan institusional, perencanaan pajak dan dewan komisaris asing terhadap nilai perusahaan

2019 ◽  
Vol 8 (2) ◽  
Author(s):  
Anita Ade Rahma ◽  
Lisa Nabawi ◽  
Ronni Andri Wijaya
Keyword(s):  
Significant Influence ◽  
Firm Value ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Total Sample ◽  
Tax Planning ◽  
Purposive Sampling ◽  
Institutional Leadership ◽  
Company Value

The purpose of this study is to analyze the role of institutional leadership, tax planning and foreign board of commissioners on firm value. The population in this study were 615 companies listed on the Indonesia Stock Exchange in 2015-2017. The sample was chosen using purposive sampling to get a total sample of 325 companies with a total of 975 observations of company data. The results of this study indicate that institutional leadership and tax planning have no role in increasing company value. While the foreign board of commissioners showed a significant influence on the value of the company. This proves that there is a need for diversity in the structure of the board that can trigger an increase in the value of the company. In addition, the presence of a foreign board is needed for the progress of the companyKeywords: Investment decisions; funding decisions; dividend policy; company value

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

Audit Quality and the Market Value of Cash Holdings: The Case of Office-Level Auditor Industry Specialization

2014 ◽  
Vol 34 (2) ◽  
pp. 27-57 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Jay Junghun Lee ◽  
Jong Chool Park
Keyword(s):  
Financial Reporting ◽  
Firm Value ◽  
Capital Investment ◽  
Audit Quality ◽  
Cash Holdings ◽  
Market Value ◽  
High Quality ◽  
Value Of Cash ◽  
Office Level ◽  
Industry Specialist

SUMMARY This study investigates the monitoring role of high-quality auditors defined as office-level industry specialists in the stock market valuation of cash assets. We find that the market value of cash holdings is significantly higher for the client of an industry specialist auditor. The marginal value of cash is 34 cents higher for the client of a joint-industry specialist at both the national and city levels than for the client of a nonspecialist. We also find that cash holdings are more closely associated with capital investment and the market value of capital investment is significantly higher when the auditor is a joint-industry specialist. Moreover, we find that the value of cash increases significantly when the client changes its auditor to a joint-industry specialist. Our findings hold even after controlling for the client's governance efficacy and financial reporting quality. Our results provide new insight into the mechanism through which high-quality audits affect firm value: External audits facilitate shareholders' monitoring over managerial cash expenditures, thereby leading market participants to attach a higher value to cash holdings.

scholarly journals Regulatory Arbitrage in the Intersection of Accounting Standards and Tax Laws: The Case of Synthetic Leases

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Jan Friedrich
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Accounting Standards ◽  
Regulatory Arbitrage ◽  
Regulatory Changes ◽  
Tax Laws ◽  
The Usa ◽  
Tax Benefits ◽  
Sophisticated Instrument ◽  
Us Gaap

AbstractThis paper focuses on the interplay between accounting standards and tax laws in the context of regulatory arbitrage by examining the development of synthetic leases especially in the USA. In a synthetic lease, the lease remains off balance sheet for financial reporting by the lessee, while depreciations and interest expenses can be deducted for tax purposes. Exploring the evolving structures of synthetic leases over the last 30 years, the paper demonstrates how financial engineers have been able to perpetually re-structure this sophisticated instrument to keep it off-balance sheet instrument notwithstanding regulatory changes. Specifically, it shows that the most recent revision of lease accounting standards in 2016 – that intended to mark the end of off-balance sheet leases under IFRS and US-GAAP – resulted in reviving the demand for synthetic leases as the tax benefits outweigh the structuring costs. Contributing to the debate on the shift towards international accounting convergence (including US-GAAP and IFRS), the paper argues that attempts to limit regulatory arbitrage may also consider the reciprocal linkages between accounting standards and tax laws. For instance, tax laws should be considered as a means to limit regulatory arbitrage in financial reporting.

Value Destruction and Financial Reporting Decisions

2006 ◽  
Author(s):  
John R. Graham ◽  
Campbell R. Harvey ◽  
Shivaram Rajgopal
Keyword(s):  
Financial Reporting ◽  
Reporting Decisions

Value Destruction and Financial Reporting Decisions

2006 ◽  
Vol 62 (6) ◽  
pp. 27-39 ◽  
Author(s):  
John R. Graham ◽  
Campbell R. Harvey ◽  
Shiva Rajgopal
Keyword(s):  
Financial Reporting ◽  
Reporting Decisions
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