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This paper explores the value relevant information of future income taxes under The Canadian Institute of Chartered Accountants (CICA) handbook section 3465. CICA handbook section 3465 requires Canadian companies to use the asset and liability method to account for income taxes. Consistent with prior studies, this paper shows that future tax assets are positively associated with share prices, suggesting that they are valued as assets. Future tax liabilities are negatively associated with share prices, suggesting that they are valued as liabilities. Future tax value allowance, which is created for future tax assets, is negatively associated with share prices. This study also explores the value relevant information of future tax asset and liability categories. In addition, this paper explores what determines the valuation of future tax assets and liabilities. It is argued that future tax assets are more (less) valuable if (no) sufficient future income will be generated in the near future to utilize these tax assets; future tax liabilities will reduce share prices more (less), if there is a higher (lower) likelihood of reversal in the short run. The results support this argument. It is shown that (1) future tax assets are less valuable if the firm's value allowance is higher (i.e., the management does not expect the firm will generate sufficient taxable income in future years to utilize these tax assets), or the firm's leverage is higher (another proxy for no sufficient future taxable income), and (2) future tax liabilities reduce share prices less if the firm's investment in capital properties is increased.

This paper demonstrates that present value (PV) models can be viewed as multiperiod extensions of accrual income statements (AISs). Failure to include AIS details in PV models may lead to inaccurate estimates of earnings and rates of return on assets and equity and inconsistent rankings of mutually exclusive investments. Finally, this paper points out that rankings based on assets and equity earnings and rates of return need not be consistent, requiring financial managers to consider carefully the questions they expect PV models to answer.

AISs are used to guide the construction of PV models. Numerical examples illustrate the results. Deductions from AIS definitions demonstrate the potential conflict between asset and equity earnings and rates of return.

PV models can be viewed as multiperiod extensions of AISs. Mutually exclusive rankings based on assets and equity earnings and rates of return need not be consistent.

PV models are sometimes constructed without the details included in AISs. The result of this simplified approach to PV model construction is that earnings and rates of return may be miscalculated and rankings based as asset and equity earnings and rates of return are inconsistent. Tax adjustments for asset and equity earnings may be miscalculated in applied models.

This paper provides guidelines for properly constructing PV models consistent with AISs.

PV models are especially important for small to medium size firms that characterize much of agricultural. Providing a model consistent with AIS construction principles should help financial managers view the linkage between building financial statements and investment analysis.

This is the first paper to develop the idea that the PV model can be viewed as a multiperiod extension of an AIS.

Compares the way women are taxed in the Germany, Sweden and The Netherlands by looking at both macro and micro data from the perspective of a wife′s contribution to family income. The programs used for analysis are included in an appendix. Taxing husbands and wives by adding joint incomes and dividing by two (as in Germany) penalises dual‐earner couples and favours one‐earner couples. Completely separate taxation (as in Sweden) is a major incentive for couples to be dual‐earner. In The Netherlands the government reform of the tax system (1990) has reduced negative tax effects on secondary earnings without introducing the positive effects seen in Sweden. Tax incentives are not the only determinant of women′s participation in the labour market.

This paper aims to investigate how transfer pricing (TP) and earnings management affect tax avoidance of firms in Ghana.

The authors use a panel data set from 2008 to 2015 to further shed light on transfer pricing-tax avoidance nexus by examining the complex interaction of three key variables: transfer pricing, earnings management and tax avoidance.

The results show that almost all the sample firms have engaged in some form of transfer pricing strategies and the manipulation of earnings to avoid tax during 2008-2015. There is evidence to suggest that non-financial multinational corporations manipulate more earnings than the financial firms while financial firms also use more TP than non-financial firms. The overall results suggest that the sensitivity of tax avoidance to transfer pricing decreases as firms increase their earnings management. By extension, these results have important policy implication for policymakers in assessing the effectiveness of tax laws relating to transfer pricing.

The authors investigate how transfer pricing and earnings management affect the avoidance of firms operating in Ghana.

Krull (2004) finds that US multinational corporations (MNCs) increase amounts designated as permanently reinvested earnings (PRE) to maximize reported after-tax earnings and meet earnings targets. We extend this research by examining the relationship between executive equity compensation and the opportunistic use of PRE by US MNCs, and the market reaction to earnings management using PRE designations. Firms use equity compensation to incentivize executives to strive for maximum shareholder wealth. One unintended consequence is that executives may engage in earnings management activities to increase their equity compensation. In this study, we examine whether the equity incentives of management are associated with an increased use of PRE. We predict and find strong evidence that the changes in PRE are positively associated with the portion of top managers' compensation that is tied to stock performance. In addition, we find this relationship to be strongest for firms that meet or beat forecasts, but only with the use of PRE to inflate income, suggesting that equity compensation incentivizes managers to opportunistically use PRE, especially to meet analyst forecasts.

Further, we provide evidence that investors react negatively to beating analysts' forecasts with the use of PRE, suggesting that investors find this behavior opportunistic and not fully convincing. This chapter makes an important contribution to what we know about the joint effects of tax policy, generally accepted accounting principles, and incentive compensation on the earnings reporting process.

The purpose of this paper is to examine three different responses to the Finnish 2005 tax reform that, among other things, reduced the corporate tax rate and hiked dividend taxation. Focus lies on the factors influencing the decision to change the fiscal year-end and whether earnings management is more prevalent when the decision is not taken.

This study uses the financial statement data of Finnish private firms and studies 350 fiscal year-end changing firms and 700 non-changing firms with logistic and linear regression analysis. Discretionary accruals are the proxy for earnings management.

The results suggest that firms seize the window of opportunity and extend fiscal years depending on the magnitude of the expected tax savings. Firms that do not change their fiscal year-end engage in more tax-induced earnings management. In terms of economic consequences, the earnings management approach is less economically significant.

This study only examines a limited number of firms that change their fiscal year-end, hence, care has been exercised in generalising the findings.

The findings may be considered when structuring future tax reforms, particularly when considering transition rules relating to changes in fiscal year-ends. The study may also have implications beyond tax reforms since the evidence of opportunistic changes in the fiscal year-end can be informative for tax authorities, independent auditors and creditors.

This study contributes to the relatively scarce literature on private firm responses to tax policy changes by analysing both upward and downward earnings management, as well as changes in the fiscal year-end. This is in contrast to previous research that mainly focusses on listed firms and absolute earnings management or earnings management in one direction.

The purpose of this paper is to examine the cross‐sectional relation between the value of cross‐border intrafirm transfers (CITs) and three dependent variables: return on investment (ROI), the US effective tax rate (ETRUS), and the global effective tax rate (ETRGL) to assess the existence or nonexistence of cross‐jurisdictional income shifting.

Regression analysis is used to test the relationship between CIT and accounting performance and effective tax rates.

The results indicate that ROI and ETRUS increase whereas ETRGL decreases with the extent of CITs after we control for variables that impact earnings and taxes (e.g. size, industry classification, internationalization, tax shelter, and growth). This suggests that firms earn income, on average, in jurisdictions with tax rates greater than the USA, such that diverting income from overseas to the USA is a tax‐saving action. The tax results are consistent with Jacob and Mills and Newberry's findings that firms shifted income into the USA. The results also reveal that companies that engage in CITs are those that are large, relatively more profitable, and pay more US taxes.

This study does not differentiate between transfer pricing schemes for tax minimization reasons from those done for earnings management purposes, which should be addressed by future research.

Results have public policy implications as an understanding of how CITs affect accounting performance and taxes is important for the craft of tax policy and transfer price regulation.

This study furthers our understanding of the impact of CITs on earnings and taxes, an important component of accounting research which has not been properly addressed by prior studies.

Accounts manipulation has been the subject of research, discussion and even controversy in several countries including the USA, Canada, the U.K., Australia, Finland and France. The objective of this paper is to provide a comprehensive review of the literature and propose a conceptual framework for accounts manipulation. This framework is based on the possibility of wealth transfer between the different stake‐holders, and in practice, the target of the manipulation appears generally to be the earnings per share and the debt/equity ratio. The paper also describes the different actors involved and their potential gains and losses. We review the literature on the various techniques of accounts manipulation: earnings management, income smoothing, big bath accounting, creative accounting, and window‐dressing. The various definitions of all these, the main motivations behind their application and the research methodologies used are all examined. This study reveals that all the above techniques have common elements, but there are also important differences between them.

In this paper, I provide an empirical work in order to test the tax‐adjusted market valuation (residual income) model. Feltham‐Ohlson's (1995) residual income model can be extended by adding corporate tax: firm market value is a function of the bottom line after‐tax accounting data, e.g., book value and after‐tax earnings. Under this tax‐adjusted framework, certain issues are examined: the information from the firm's operating activities is not enough to measure the firm's market value; financial activities also affect firm market value. In particular, abnormal financial earnings are not equal to zero, due to the tax deduction on interest expenses. An empirical analysis, using the financial reporting data of Canadian firms for the years 1994–1999, demonstrates that the current book value of financial assets and operating assets, abnormal operating earnings, and abnormal financial earnings are all relevant to firm market value. The sensitivity tests, which define the corporate tax rates in different ways, do not change the results. The sensitivity test, which uses the financial analysts' forecasts, does not change the results, either. Furthermore, the empirical analysis shows that abnormal financial earnings enhance firm share price more when the firm has lower non‐tax costs, i.e., firm business risk (financial distress) and bankruptcy costs. It supports the previous research on capital structure to the extent that debt financing benefits a firm more when non‐tax costs are lower.

Prior research demonstrates that share prices reflect a risk premium that is associated with earnings variability. This suggests that managers can reduce the cost of capital and increase share prices by reducing earnings variability. In this study, we investigate bank managers' use of discretion in estimating loan loss provisions (LLP) to reduce earnings variability. We find that banks with relatively high pre‐managed earnings have positive discretionary LLP and banks with relatively low pre‐managed earnings have negative discretionary LLP, results that are consistent with the hypothesis of earnings management to reduce earnings variability. In addition, we find that bank managers' decisions to reduce earnings variability are related to the need for external financing and to gains and losses on the sale of securities which serve as substitutes for accomplishing their objective of earnings variability reduction.