Tax-Related Restatements and Tax-Contingency Reporting

• In Event: Tax, History, and Historical Tax

Abstract

We examine the impact of tax-related misstatements and disclosures on the accrual of tax reserves. We find a negative association between having tax-related misstatements in the financial statements and the accrual of tax reserves. We also find a positive association between the disclosure of the need to restate a previously issued financial statement because of tax-related issue and accrual of tax reserves. This relation is consistent with the disclosure of tax-related restatement bringing to the attention of regulatory and taxing authorities the deficiencies and uncertainties associated with a corporation’s financial reporting for its income taxes. Thus, reducing the ability of the corporation to lower its tax reserves to avoid the scrutiny of the IRS to increase earnings. However, we find that non-tax-related misstatements or disclosures do not affect the accrual of tax reserves

Authors

• Paul N Tanyi, University of North Carolina-Charlotte

• Hughlene Burton, University of North Carolina Charlotte