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Earnings Management of Listed Companies Reconciliation of income tax differences affect Empirical Study

Author: LiYuZuo
Tutor: ChenXuDong
School: Southwestern University of Finance and Economics
Course: Financial Management
Keywords: Account of differences in income tax Earnings Management Corporate income tax reform
CLC: F812.42
Type: Master's thesis
Year: 2011
Downloads: 246
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Abstract

Because accounting accounting goal is to provide decision stakeholders useful information, and the corporate income tax law to tax as the goal, resulting in accounting standards and corporate income tax law there are obvious differences between. However, accounting and corporate income tax and are two closely related areas: accounting for tax-related economic matters recognition, measurement and records are accurate calculation of corporate income tax indispensable condition. Meanwhile, countries in the world have enacted amendments to accounting standards relating to income taxes on financial accounting, tax accounting to regulate, so Income Tax Law on Accounting produce multiple effects. Therefore, the accounting and corporate income tax these two important areas of interaction between research has become a very worthy issues enterprises face the difference between tax account how to react is also very worth exploring. Currently there are some such studies abroad, and in the vast majority of our existing research is the use of qualitative methods, few quantitative studies also basically is built before the year 2007 the old corporate income tax system based on the old accounting standards, so In the context of our current system of more detailed reconciliation of the relationship between tax-depth research is very valuable. This paper tries to new accounting standards in our country (January 1, 2007 began) and after imputation Corporate Income Tax Law (March 16, 2007 issued January 1, 2008 implemented) implementation context, analysis leading listed company pre-tax accounting profit and taxable income differences (hereinafter referred to as account tax income differences) influencing factors, explore the financial statements of listed companies from data loss projected tax income differences as well as differences in income tax account manipulative methods investigated before and after the implementation of the new tax law, listed companies in China accounts showing differences in how tax income trends, and this trend and corporate earnings management behavior linked. On this basis, China's listed companies to further explore whether and how the use of accounting standards and tax law differences in earnings management to clarify our earnings management of listed companies by the extent to which tax effect. The results of this study can be expected to verify that the new tax regulations and accounting standards collaborative intent anti-avoidance intention to achieve results for the enterprise accounting standards and changes in income tax laws provide some interaction evidence. And to verify the laws in the future refinement and development of the new law, we should consider how accounting standards and corporate income tax regulations linkage between how to regulate the disclosure of tax-related information, in order to provide tax fairness and enhance the efficiency of capital markets, a win-win result. The author in the study, the use of normative analysis and empirical research method of combining. First of all States, a review of the relevant literature inside and outside, including the tax cost of earnings management, account tax income differences and projection methodology, earnings management and handling tax income differences account several aspects of the relationship. Then, the author analyzes from a system perspective on the world within two representative account of tax relations mechanism (represented by Germany's leading tax mechanisms and as the representative of the United States accounted for tax separation mechanism) were compared and found dominant in the tax mechanism, a single company's financial accounting and tax accounting is almost the same, single company accounting and corporate accounting group showing a \Tax-led corporate management mechanism can effectively suppress the accounting fraud, but will be affected by tax law affect the accounting distortions on the financial position and operating results reflect; account tax separation mechanism allows the correlation of accounting information quality requirements are fully protected, but also brought a decline in the reliability of accounting information and regulatory difficulties and other issues. In our country in 1992 as a starting point of significant accounting reform, the author analyzes the relationship of tax mechanisms account the evolution of the development of relations between our account tax is divided into three stages: the account of the overall tax integration phase (1992-1997), carried over taxes separation stage (1998-2006) and account tax appropriate separation stage (after 2007). Clear the new Enterprise Income Tax Law Compared to the major changes to the original place: domestic, foreign applicable unified enterprise income tax law; unify and appropriate to reduce the corporate income tax rate; unify and standardize the tax deduction methods and standards; harmonization of tax incentives, the implementation of \Meanwhile, the author focused on exploring new Enterprise Income Tax Reform in China under the account of the overall relationship between changes occurring mechanism, through the analysis found that in China, in 2008 before the implementation of the new Enterprise Income Tax Law, inside and outside the coexistence of two corporate income tax system, corporate income tax reform they lag behind the process of international convergence of accounting standards, resulting in the loss of significant tax separation situation; while after the implementation of the new tax law, foreign enterprises unified tax system, tax on the criteria for determining the tax basis of revenue recognition and accounting standards convergence, tax front expense deduction standards and the differences between accounting standards increasingly reduced, so our corporate income tax regulations and accounting standards and show a certain degree of collaboration. Based on the new Enterprise Income Tax Reform in China under the account analysis of the relationship, the author established the following two hypotheses: Corporate income tax reform, the listed company's accounts and handling tax income differences account tax income differences are narrowing (assuming a) . Listed companies accounted for by manipulating its tax income differences in earnings management to avoid tax costs; corporate income tax reform, its earnings management of listed companies bear the cost of increased income tax (assuming two). To test the first hypothesis is substantiated, the author based on the financial statements of listed companies information down the launch of its tax income differences account, including the introduction of operating income, depreciation and amortization, impairment losses, fair value gains and losses, current wage expenses and financial expenses , investment income, operating expenses, including the eight factors as explanatory variables, and establish account differences in income tax model. In order to verify the second hypothesis, the author has established earnings management - account tax income difference model to handling accruals measure of earnings management, the use of tax reform, reform of variables before and after comparison analysis, and manipulation of accounts tax income differences between the two models linked variable. This study showed that after the implementation of the new tax law, the performance of listed companies in China is still a pre-tax accounting profit is greater than the overall taxable income characteristics. In China's listed companies, asset impairment losses and investment income account is to generate tax income difference of the two most important factor, which is part of the expected institutional analysis of the situation is the same. This factor of asset impairment losses, the enterprise income tax regulations only allow tax deduction has been made for doubtful debts (accounts receivable balance at year-end 0.3%) and the provision of goods undercut preparation (at year-end should 0.5% of accounts receivable balance), impairment charges for other companies in the tax return requirement increases taxable income, income tax accounted for differences in the regression model showed that differences in the impact of such a system, the average per sample companies Hu Yuan provision for impairment of assets, will lead to its pre-tax accounting profit is less than the taxable income 0.69 yuan. Current tax regulations deal with the investment of assets, requires companies to invest only in the transfer or disposal of assets, the cost can be deducted before tax, which led to investment income account to become another important factor in tax income differences. The regression model showed that the sample confirmed one yuan per company investment income, will lead to its pre-tax accounting profit is greater than the taxable income 0.95 yuan. This study also confirmed that China's non-existence of losses of listed companies by manipulating accounts to circumvent tax income differences in the cost of its tax earnings management behavior, for the realization of these companies to meet the expectations of stakeholders, such as regulatory requirements refinancing intentionally raised its target Accounting profit before tax, but did not raise all of its accounting profits to pay income tax. Compared to the year before income tax reform, tax reform of listed companies as a whole accounted for narrowing the gap in income tax, the new Enterprise Income Tax Law and the intent of the new accounting standards coordination to achieve a certain degree. Meanwhile, the tax system under the new law account differences existing between the narrowing trend, the new tax law, while reducing the statutory tax rate for domestic enterprises and improve the standard tax deduction, on the whole the corporate income tax reform mean for domestic enterprises reduce the tax burden, so the comparison with the years before 2008, the new enterprise income tax law after the implementation of China's listed companies accounted for handling differences in the overall size of income tax decrease. On the other hand, the new enterprise income tax law intended to strengthen anti-avoidance intent has also been a certain degree of realization: tax reform, earnings management of listed companies due to differences in handling account of the overall decline in income tax, and its earnings management of listed companies behavior bear the cost of increased income tax. Finally, the author after the implementation of the new tax law for the loss of tax relations demonstrated appropriate separation characteristics of listed companies on how to suppress the resulting differences in handling account the issues raised taxes a viable solution. Generally believed that the merger pre-tax accounting profit and taxable income is the most direct method of operation, but this program may make it difficult to obtain reflect the real situation of the accounting information, accounting information is not conducive to achieving the relevant requirements, and thus leading capital market efficiency. Require companies to fully disclose their income tax returns is an alternative solution, but this approach leads to corporate trade secrets and other proprietary technology was leaked. Therefore, only require companies to disclose income tax returns some of the project is the best solution. This program can either be managed so that investors had not misled earnings information, but also to meet the business need for confidentiality. The author suggested that the relevant departments as soon as possible on the issue of disclosure of tax-related information to develop regulations requiring companies to submit in its external accounting information, the disclosure of the annual report of the applicable income tax rate, taxable income, income tax payable and other information.

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CLC: > Economic > Fiscal, monetary > Finance, the state's financial > China's financial > Financial income and expenditure > Tax
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