The Quality of Tax Accounting for Financial Reporting Purposes - International Evidence from the United Kingdom

Song, Q.; Holland, K.

Abstract

The quality of tax accounting can be defined as the relationship between the annual tax expense reported in firms’ financial statements and future tax cashflows. As corporate income taxes have a material proportion of earnings, assessing the tax accounting quality can help financial statement users in evaluating future commitment to internal funds. While there is an emerging US-based literature on tax accounting quality, to the authors’ knowledge this is the first study to examine tax accounting quality in a domestic standard setting outside of the US and the first under a regime governed by International Financial Reporting Standards.

Results of this study indicate that tax accounting quality is significantly lower for firms that engage in higher levels of tax management or have stronger earnings management pressure. While corporate governance mechanisms do not moderate the relationship between tax management and tax accounting quality, there is some evidence of a moderating effect in the relationship between earnings management pressure and tax accounting quality. In addition, we observe variations in tax accounting quality associated with a change in tax-related financial reporting standards.

Citation

Song, Q., & Holland, K. (2023). The Quality of Tax Accounting for Financial Reporting Purposes - International Evidence from the United Kingdom. Journal of International Accounting, Auditing and Taxation, 52, Article 100564. https://doi.org/10.1016/j.intaccaudtax.2023.100564

• Journal Article Type: Article
• Acceptance Date: Oct 29, 2022
• Online Publication Date: Jul 22, 2023
• Publication Date: 2023-09
• Deposit Date: Nov 2, 2022
• Publicly Available Date: Jul 23, 2025
• Journal: Journal of International Accounting, Auditing and Taxation
• Print ISSN: 1061-9518
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 52
• Article Number: 100564
• DOI: https://doi.org/10.1016/j.intaccaudtax.2023.100564
• Public URL: https://nottingham-repository.worktribe.com/output/13174541
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S1061951823000435