Evidence on Book-Tax Differences and Disclosure Quality Based on the Notes to the Financial Statements

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Evidence on Book-tax Differences and Disclosure Quality Based on the Notes to the Financial StatementsMaria Theresia Evers*, Katharina Finke*, Sebastian Matenaer**, Ina Meier**, Benedikt Zinn* July 2014Abstract: The German Accounting Law Modernization Act (BilMoG) represents a change in paradigm with regard to the traditionally close relationship between financial and tax accounting in Germany. At the same time, requirements on the disclosure of deferred taxes were revised considerably. We make use of these new disclosure provisions to disaggregate firms' deferred tax position and to analyze the components of temporary book-tax differences that add to the reporting gap in Germany. To this end, we apply a unique dataset of hand-collected information from individual financial statements for the fiscal year 2010. We find considerable differences between financial and tax accounting and observe that temporary book-tax differences are mainly associated with mandatory differences in accounting for provisions. The scope and quality of tax-related disclosures vary substantially and the overall disclosure quality is low. In order to identify the determinants of the heterogeneity of disclosure quality, we construct an index for voluntary and mandatory disclosure of deferred tax information and conduct multivariate analyses to explain firms' disclosure decisions. We show that the recognition of deferred tax assets and liabilities on the face of the balance-sheet is significantly and positively related with disclosure quality in the notes to the financial statements. Further, our results suggest that larger firms are more likely to have highquality tax disclosures and that high implementation costs could also explain the observed shortfalls in disclosure quality. Moreover, we find that different reporting incentives might apply if reporting on losses is assessed in isolation. We use these insights to derive implications for the discussion about whether and how to reform disclosure requirements under German GAAP. JEL Classification: H20, H25, K34, M41Keywords: book-tax conformity; book-tax differences; deferred taxes; disclosure quality; tax reporting

Corporate governance and tax disclosure phenomenon in the Malaysian listed companies

“…In terms of firm-specific characteristic variables, the results show positive and significant associations only between TD and two variables: firm size (FSIZ) and industry dummy (INDS). The positive and momentous association between FSIZ and TD is consistent with a study by Evers et al (2014). The results are generally consistent with the empirical disclosure literature.…”

Tax-Saving Components on Tax Disclosures

“…The result of the research conducted by [6] resulted in the conclusion that temporary differences have a significant and negative effect on tax disclosures. This is in line with [11] and [12], because deferred-tax obligations are not documented. However, these findings are inconsistent with [13], which linked the increase in temporary differences with an increase in aggressive tax-planning.…”

“…The information in this tax disclosures provides a signal to the stakeholders and shareholders of financial statements. [11] supports the relationship between temporary differences and tax disclosures. Based on the above discussion regarding temporary differences from tax saving to tax disclosures, the following hypothesis was formulated as follow: H2: Temporary differences have an effect on tax disclosures.…”

Tax Loss Carryforward Disclosure and Uncertainty

“…We contribute to the literature about tax related information in the annual report. Previous studies indicate incomplete and not easily understandable disclosures about taxes that differ remarkably between companies (Evers et al, 2014;Kvaal and Nobes, 2013;Ready et al, 2011). In this study, we try to explain part of the variation.…”