Do Private Tax Disclosures Affect the Quality of Public Financial Reporting?
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Date
2022-10-04
Authors
Wu, Juan
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon
Abstract
This study investigates whether increased private tax disclosures have implications for the quality of public financial reporting in the context of Schedule UTP. In terms of the predictive value of tax reserves, I find that firms reverted from being over-reserved to being adequately reserved post-Schedule UTP. In terms of the confirmatory value of tax reserves, I find that firms report more accurate tax reserves post-Schedule UTP, as evidenced by the higher explanatory power of the UTB prediction model (Rego and Wilson, 2012) and reduced tax expense management post-Schedule UTP. In terms of the informativeness of tax reserves, I find that analysts’ ETR forecast accuracy is improved post-Schedule UTP, suggesting reduced information asymmetry between firms and financial statement users. Overall, this study provides evidence that other stakeholders beyond tax authorities benefit from increased private tax disclosures, and Schedule UTP may have achieved the goal intended by the FASB.
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Keywords
Financial Reporting Quality, Schedule UTP, Tax Disclosures, Tax Reserve