The Roles of Book‐Tax Conformity and Tax Enforcement in Regulating Tax Reporting Behaviour Following International Financial Reporting Standards Adoption

19 Pages Posted: 6 Sep 2017

See all articles by Ester Chen

Ester Chen

Peres Academic Center

Ilanit Gavious

Ben-Gurion University of the Negev

Date Written: September 2017

Abstract

This study investigates whether increasing the level of tax enforcement can potentially offset the primary cost of a reduction in the level of book‐tax conformity (BTC) following International Financial Reporting Standards (IFRS) adoption – increased tax avoidance. We find that after the decrease in BTC and the concomitant increase in tax enforcement that followed IFRS adoption in Israel, tax avoidance declined significantly. Our results imply that one of the primary costs of reducing BTC can be avoided. Moreover, the results suggest that rather than one strict regulatory approach to deal with reporting manipulations, a combination of trust and control is more effective and less radical.

Keywords: Book‐tax conformity, Earnings management, International Financial Reporting Standards, Tax avoidance, Regulation

Suggested Citation

Chen, Ester and Gavious, Ilanit, The Roles of Book‐Tax Conformity and Tax Enforcement in Regulating Tax Reporting Behaviour Following International Financial Reporting Standards Adoption (September 2017). Accounting & Finance, Vol. 57, Issue 3, pp. 681-699, 2017, Available at SSRN: https://ssrn.com/abstract=3032135 or http://dx.doi.org/10.1111/acfi.12172

Ester Chen (Contact Author)

Peres Academic Center

P.O.Box 328
Rehovot, 76120
Israel

Ilanit Gavious

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheva 84105, 84105
Israel

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