The Characteristics of the Income Tax Expense Reported by Listed Firms in France and in the UK
Speaker
Abstract
| This study researches the characteristics of the income tax expense reported by listed firms in France and in the UK under their respective local GAAP and under IFRS. Our results show that the recognised income tax expense is strongly related to the reported earnings before income tax both under French GAAP (respectively UK GAAP) and under IFRS. These results indicate that the application of the inter-period income tax allocation method, required in those accounting standards, results in the matching of the income tax expense with the earnings before income tax. In addition, we find evidence that firms are cautious to recognise income tax benefits associated with net operating losses. We attribute this to the strict verification requirements which are included in accounting standards for such income tax benefits. The accounting standards (e.g. IAS 12) require convincing other evidence to support the recognition of income tax benefits. Our results show that this significant difference in degree of verification for income tax benefits compared to income tax expenses results in conservatism. Moreover, we find evidence that institutional settings from France and the UK influence the reported income tax expense under local GAAP and under IFRS. We find that there are cross sectional differences in the association between earnings before income tax and the income tax expense which can be attributed to a country’s tax system and its legal system. French listed firms report, under influence of a dependent tax system and code law, an income tax expense which is smoother than the income tax expense reported by UK listed firms under an independent tax system and common law. |
| Contact information: |
| Paolo Perego |
