EFFECT OF TAX AVOIDANCE ON ACCOUNTING CONSERVATISM OF LISTED NON-FINANCIAL FIRMS IN NIGERIA

Salami Suleiman,Mensah Barnabas

doi:10.32890/jes2021.3.2.4

Abstract

The study seeks to ascertain the effect of tax avoidance on the accounting conservatism of listed non-financial firms in Nigeria. Tax avoidance was proxied by Generally Accepted Accounting Principle Effective Tax Rate (GETR), Cash Effective Tax Rate (CETR), and Book Tax Difference (BTD), while accounting conservatism was measured using Negative Accruals (NA). The control variables utilised were leverage, Return on Asset (ROA), and Firm Size (FS). The study covered a period of seven years (2014-2020) and a population of forty-eight listed non-financial firms on the Nigerian stock exchange. The data were analysed using the panel regression technique. The findings discovered that GETR and BTD significantly and negatively affect unconditional conservatism. Overall, this paper shows that tax avoidance is a determinant of financial reporting conservatism in Nigeria.

Highlights

Accounting conservatism ensures management reports all possible loss/expense incurred by the firm at some point in the future while all anticipated revenues not yet earned are not accounted for until they have been earned
The standard deviation of Generally Accepted Accounting Principle Effective Tax Rate (GETR) shows the degree of variability from the mean to be high at approximately 307, showing that the value portrayed by the mean could be misleading as there is a very high degree of disparity from the industry average
GETR used as a proxy of tax avoidance has a negatively significant effect on unconditional conservatism

Summary

Introduction

Accounting conservatism ensures management reports all possible loss/expense incurred by the firm at some point in the future while all anticipated revenues not yet earned are not accounted for until they have been earned. Unconditional conservatism involves management systematically understating book values of assets or expensing assets which could otherwise have been capitalised due to a specific aspect of the accounting process, while for conditional conservatism, the book values of assets are written down but not up as well asymmetrical recognition of gains and losses under adverse conditions (Basu, 1997). Under both forms conservatism, asset, and gains require higher verification than liabilities and losses. Where this is not the case, the reporting firm has to devise a means of increasing book income while driving down taxable income (Frank et al, 2004)

Methods

Results

Conclusion