Deferral Method Research Articles

Fiscal and Taxation Management Strategies of Enterprise Sales Income

At the point in time when the sales revenue is realized, the accounting treatment is different from the tax treatment, and it is necessary to effectively control the revenue. From the perspective of corporate tax planning, this paper analyzes the impact of sales revenue on taxation and various factors that affect revenue, points out the key points of sales revenue management and control, and proposes tax base management and control strategies, namely revenue minimization, revenue maximization and revenue. Equalization strategy; from the key factors affecting the recognition of sales revenue, research and put forward the operation methods of management and control of revenue, including factor method, deferral method, decomposition method, transfer method and industrial chain method.

Is the balance sheet method of deferred tax informative?

Purpose This study aims to compare the value relevance of the recognised deferred tax elements under International Accounting Standard 12 (IAS 12): Income Taxes (balance sheet method) relative to the taxes payable (flow through) method. It also investigates the value relevance of the IAS 12 deferred tax disclosures. Design/methodology/approach This study used standard valuation models to examine the association between share price and the recognised amounts and footnote disclosures of IAS 12. The Vuong (1989) test is then used to assess which information set is more value relevant. The sample includes 440 firm years over the period 2008-2012. Findings The results show that deferred tax amounts recognised under the balance sheet method provide no more information to investors than the taxes payable method (TPM). Deferred tax footnote disclosures, however, are more relevant than the amounts recognised under the balance sheet method. This study investigates potential reasons for the relevance of footnote disclosures. Research limitations/implications This study has not addressed whether the deferral method of deferred tax is relevant. In addition, while footnote disclosures look promising, further research is necessary. Practical implications The results suggest, given the complexity and cost of compliance with IAS 12, that the International Accounting Standards Board (IASB) should undertake a comprehensive re-think on the relevance of the balance sheet method in IAS 12 and revert to the TPM. Originality/value The IASB and the European Financial Reporting Advisory Group have expressed concerns over the balance sheet method under IAS 12. The IASB and the Financial Accounting Standards Board also have concerns over the cost and complexity of the deferred tax disclosures. The study’s results offer a perspective by examining whether the balance sheet method is value relevant. Prior research has addressed this issue using local data (i.e. pre-International Financial Reporting Standards). This study also provides suggestions for future research into deferred tax footnote disclosures.

The Impact Of Statement No. 91 On Financial Reports of Financial Institutions

SFAS No. 91 restricted the previously acceptable methods of accounting for loan origination fees and costs to the deferral method. The purpose of this paper is to discuss the provisions of SFAS No. 91 and examine its impact on financial reports of affected entities. We analyzed a sample of 90 financial institutions annual reports. Our examination reveals that the majority of studied entities did not experience material impacts in their financial reports as a result of compliance with the provisions of SFAS No. 91.

One-Year Deferral Method for Estimating Avoided Transmission and Distribution Costs

This paper presents a new method for estimating avoided transmission and distribution costs associated with small load reductions, named the one-year deferral method. It is established on the basis of the system planner's actual response to a small reduction in the forecast annual peak load. This paper has also explored the noninteger deferral time (i.e., a fraction of a year) in the present worth method, which is seemingly inconsistent with the system planning practice. In addition, as allowed by the new method, the effect of the size and type (shape) of a load reduction stream (i.e., a series of reductions in the forecast annual peak loads) on avoided costs is studied, which is important for determining generic avoided cost values intended for various applications.

On the taxation of multinational corporate investment when the deferral method is used by the capital exporting country

The user cost of capital for a subsidiary is derived when the capital exporter uses the deferral method for the taxation of the parent's foreign-source income. The Hartman-Sinn result implying that the capital exporter's tax on remitted dividends is irrelevant to a subsidiary using retentions to finance investment is shown to be correct only when host and home countries have similar corporate income tax bases. Otherwise, both the home and host country corporate tax provisions influence the cost of capital. It is also shown that a cash flow tax by the capital importer is not neutral owing to interactions with the capital exporter's tax regime.

Effects of Shareholder Information on Corporate Decisions and Capital Market Equilibrium

This paper examines the effect that imperfectly informed capital market agents have on the equilibrium paths of output, investment, and asset prices of value maximizing firms. Though information is imperfect, rational expectations is imposed as an equilibrium condition. It is found that both asset prices and corporate decisions are simultaneously affected in such a way that the efficiency-optimality relationship between them is pre- served. The effect of a fuller information structure is to move the economy from one efficient markets equilibrium to another. elaborated. Extant beliefs regarding accounting information are crystallized at two polar extremes. Policy-making bodies like the SEC and the FASB and most prac- titioners believe that investors are naive in processing information, and are principally concerned with the earnings per share figure as reported by accoun- tants. Investor decision rules are invariant to the rules for computing income, and therefore if the right or proper measure of income were not adopted, investors would be misled. In recent years stock price researchers have rapidly accumulated evidence against this naive investor hypothesis and in favor of the efficient markets hypothesis. For example, Kaplan and Roll (12) demonstrated that firms switching from the deferral method to the flow-through method for investment credit and firms switching from accelerated to straight-line deprecia- tion, in each case increasing their reported income, did not experience abnormal price increases. Sunder (23) found that firms switching from the FIFO to the LIFO method of inventory valuation, thereby decreasing their reported income, did not suffer in stock price performance. These findings raise a serious question. Do accounting statements have any informational impact on security prices at all? Several studies tested and rejected the null hypothesis that the periodic financial statements issued by corporations have no information content for capital market agents. Ball and Brown (1) tested for information content of the annual earnings report and found that foreknowledge of the earnings number could be used to generate excess returns. Brown and Kennelly (5) replicated the

Investor Evaluation of Accounting Information: Some Additional Empirical Evidence

Over the years, countless accounting and financial articles have considered the effect of various accounting procedures on the utility of financial statements. Miiany of these have bypassed the more basic question: Do accounting procedures actually affect market prices and hence the utility of financial statements? If, in fact, the market sees through accounting procedures, the literature may have little practical significance (as far as the stock market is concerned). Three recent studies have addressed this question. Archibald [1972] studied sixty-nine firms that changed their depreciation accounting method from an accelerated form to straight-line depreciation but only for financial reporting purposes. He concludes: The switch-back announcement and resultant profit improvement apparently had no immediate substantial effect on stock market performance. Ball [1972] studied 267 changes in accounting techniques made by firms listed in Accounting Trends and Techniques during the period 1947-61. Ball concludes: . . that the market is not fooled by income reports which contain changes in accounting techniques. Kaplan and Roll [1972] (hereafter, KR) studied 275 companies that switched their method of accounting for the investment credit from the deferral to the flow-through method and fifty-seven companies that continued to use the deferral method. In contrast to the conclusions of Archibald and Ball, KR conclude: Earnings manipulation may be fun, but its profitability is doubtful. We have had difficulty discerning any statistically significant effect that it has had on security prices. Relying

The investment tax credit: Conflict and accounting error

Despite diversity of opinion within the accounting profession, substantial authoritative support exists for two conflicting alternatives for disposition of the investment tax credit. These are the flow-through to income method and the deferral method. The alternatives are, however, inconsistent with the notions of exchange transaction and realization in contemporary accounting theory. The authors suggest an approach based on the following considerations: the credit is an investment allowance; it arises from an exchange transaction between the government and the entity; the credit should be reflected as an adjustment associated with income tax obligation; it should not be commingled; and it should not influence depreciation policy, tax expense for shareholder reporting; or be confused as an adjustment of tax rates.

Appraising Alternative Methods of Accounting for Accelerated Tax Depreciation: A Relative-Accuracy Approach

A significant accounting problem arises whenever a taxpaying firm uses accelerated depreciation for tax purposes but straight-line for financial reporting. Accounting Principles Board Opinion No. 11 requires that a firm which uses different methods of depreciation for tax and book purposes must set up a deferred credit account to record the difference between taxes actually paid and the taxes which would have been paid if straightline depreciation had been used for tax reporting. In this paper, an effort is made to assess the deferral method (D) using a criterion of earnings and rate-of-return accuracy. For this purpose, the deferred credit will be viewed as an offset to the asset's book balance. The assessment is made against two alternative methods of accountingflow-through (F) and accelerated (A) where the latter assumes that accelerated depreciation is used for tax and book purposes.