Abstract
The aim of this paper is to provide empirical evidence of the red flags in the level of tax reporting among theShariah Compliance companies in Bursa Malaysia. The convenience sampling method was employed among123 Shariah compliance companies of Bursa Malaysia. Meanwhile, the investigation period in this study hadcovered twelve years of continuous data, starting from the year 2001 until the year 2012. This study adopted theCurrent Based Model to calculate the level of Effective Tax Rate (ETR) as an independent variable while thefirm values as dependent variable. It was revealed that due to the Creative Accounting strategies, there is apossibility of tax fraud occurring during the calculation of taxation level. These activities, which were applied inimplementing tax planning mechanisms is however allowed by the GAAP under MFRS. As is commonly known,the purpose of tax reporting is to safeguard the interest of potential shareholders; however, these practices ofaggressive tax planning strategies will result in differing perceptions from tax payers’ and potential shareholders’perspectives. Therefore, aggressive tax planning strategies could be a red flag to financial fraud activities. Thus,this study would disclose some evidence on how financial fraud could be revealed from tax reporting strategies.
Highlights
This study will examine the red flags of the tax reporting on the firm values of Shariah compliant companies on Bursa Malaysia from the year 2001 to 2012
It is worth noting that most of the companies in Malaysia are using these kinds of strategies as it is allowed under the General Acceptable Accounting Practice (GAAP)
This study will give some useful input to policymakers by providing empirical evidence of the effect of tax reporting strategies on the firm values of the Shariah compliant companies that are listed on Bursa Malaysia
Summary
This study will examine the red flags of the tax reporting on the firm values of Shariah compliant companies on Bursa Malaysia from the year 2001 to 2012. As the number of Shariah capital market players keep on increasing, it is common for potential investors not to rely on the presence of Shariah counter only, but they concern about the quality of financial reporting which relates to the tax reporting strategies of the companies in order to maximize their investments’ profits. In relation to the aggressiveness of tax reporting activities, it is believed to have some effect on the quality of financial information provided by the companies. This study will give some useful input to policymakers by providing empirical evidence of the effect of tax reporting strategies on the firm values of the Shariah compliant companies that are listed on Bursa Malaysia. It is important to note that the tax reporting level will be the proxy by the effective tax rate level (Noor, Fadzillah, & Mastuki, 2010)
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