Do managers opportunistically recognize future income tax benefits arising from tax losses?

Khor, Pui See Karen (2006). Do managers opportunistically recognize future income tax benefits arising from tax losses? Honours Thesis, School of Business, The University of Queensland.

       
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Author Khor, Pui See Karen
Thesis Title Do managers opportunistically recognize future income tax benefits arising from tax losses?
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2006
Thesis type Honours Thesis
Total pages 97
Language eng
Subjects 14 Economics
15 Commerce, Management, Tourism and Services
Formatted abstract The Australia standard AASB 1020 Accounting for Income Tax (Tax-Effect Accounting) (1989) states that future income tax benefits arising from tax losses carried forward should only be recognized if it is "virtually certain" that future taxable income would be sufficient to allow the benefits to be realized. The standard provides managers with substantial discretion in recognizing future income tax benefits as there is no definition of "virtually certain". This study examines whether Australian managers use discretion in recognizing future income tax benefits arising from tax losses carried forward to smooth earnings, meet analyst forecasts, signal private information to investors, or influence leverage of firms. The analysis is based on a primary pooled sample of 151 firm-years over the period 2001 to 2004.

There is substantial evidence of one-sided earnings management to increase earnings to meet average analyst forecast when the current year earnings is below the analyst forecast. Managers do not decrease earnings towards mean analyst forecast when the current year earnings is above the forecast. In addition, there is also some evidence that managers smooth earnings towards prior year's earnings. However, this study does not find evidence that managers signal private information to the market or influence leverage through the recognition of future income tax benefits arising from tax losses carried forward.

 
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Created: Wed, 10 Nov 2010, 16:09:08 EST by Mr Kevin Liang on behalf of The University of Queensland Library