Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality

63 Pages Posted: 31 May 2014 Last revised: 3 Aug 2017

See all articles by Eva Eberhartinger

Eva Eberhartinger

Vienna University of Economics and Business

Nadia Genest

Vienna University of Economics and Business

Soojin Lee

WU Vienna University of Economics and Business

Date Written: May 15, 2017

Abstract

Against the background of increasing tension between the need for additional disclosure and an information overload in financial statements, this study investigates the relevance of specific tax accounting information in an experimental setting. Participants make judgments on the financial performance, investment attractiveness and tax position of the firm, in absence or in presence of detailed tax information in the other comprehensive income statement. Our results do not support the notion that such deferred tax information has an effect on the judgment of experts, as long as the amounts of deferred tax are normal. However, when the detailed amounts of deferred tax are abnormally high, judgment differs significantly. Our result is important for standard setters, as they may consider further developing guidance in standards (such as IAS 1 and IAS 12) and in the Practice Statement for how to judge materiality of information, in accordance with the materiality principle set forth in IAS 1.31. By doing so, the risk of information overload can be reduced. Our study thus contributes to the current debate on the extent of disclosure. Our results are novel and the method used allows for the isolation of effects and the identification of causal relationships.

Keywords: deferred taxes, other comprehensive income, income tax disclosure, information processing

Suggested Citation

Eberhartinger, Eva and Genest, Nadia and Lee, Soojin, Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality (May 15, 2017). WU International Taxation Research Paper Series No. 2014 - 07, Available at SSRN: https://ssrn.com/abstract=2442817 or http://dx.doi.org/10.2139/ssrn.2442817

Eva Eberhartinger (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Nadia Genest

Vienna University of Economics and Business ( email )

Soojin Lee

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria
431313364323 (Phone)

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