Does FIN 48 Improve Firms' Estimates of Tax Reserves?
52 Pages Posted: 16 Apr 2015 Last revised: 3 Sep 2016
Date Written: August 2, 2016
This paper examines whether the increased accounting guidance and reporting requirements of FIN 48 impact the adequacy and accuracy of tax reserves and the effect of auditor-provided tax services on tax reserves. While we do not find FIN 48 affected the adequacy or accuracy of tax reserves on average, FIN 48 eliminated the differences in the tax reserve adequacy of firms with and without auditor-provided tax services that existed prior to its adoption. We also find evidence of more timely recording and less premature releasing of tax reserves post-FIN 48. Our evidence is consistent with an increase in comparability of reserves for firms that do and do not purchase auditor-provided tax services, consistent with one of the FASB’s objectives for FIN 48.
Keywords: FIN 48; tax reserves; Auditor-provided tax services
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