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Author: Alexander Edwards
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
In this study, I provide evidence that the valuation allowance for deferred tax assets helps predict the future creditworthiness of a firm. Under the provisions of SFAS No. 109, a firm records a deferred tax asset provided it expects to generate sufficient taxable income to realize the asset in the form of tax savings in the future. If a firm does not expect to generate sufficient taxable income to realize the asset, a valuation allowance is created to reduce the balance. As a result, the valuation allowance indicates management's expectation of future taxable income, which could be informative in predicting the ability of the firm to make future interest and principal payments on debt. Alternatively, the valuation allowance may not be informative regarding creditworthiness if it is a result of overly conservative accounting practices or if it is used as an earnings management tool. I document a negative association between material increases in the valuation allowance and contemporaneous and future changes in credit ratings, evidence that is consistent with the valuation allowance providing a summary measure of a decline in firms' creditworthiness.
Author: Alexander Edwards
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
In this study, I provide evidence that the valuation allowance for deferred tax assets helps predict the future creditworthiness of a firm. Under the provisions of SFAS No. 109, a firm records a deferred tax asset provided it expects to generate sufficient taxable income to realize the asset in the form of tax savings in the future. If a firm does not expect to generate sufficient taxable income to realize the asset, a valuation allowance is created to reduce the balance. As a result, the valuation allowance indicates management's expectation of future taxable income, which could be informative in predicting the ability of the firm to make future interest and principal payments on debt. Alternatively, the valuation allowance may not be informative regarding creditworthiness if it is a result of overly conservative accounting practices or if it is used as an earnings management tool. I document a negative association between material increases in the valuation allowance and contemporaneous and future changes in credit ratings, evidence that is consistent with the valuation allowance providing a summary measure of a decline in firms' creditworthiness.
Author: Alexander Simon Edwards
Publisher:
ISBN:
Category : Assets (Accounting)
Languages : en
Pages : 142
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Book Description
Author: Luke Watson
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This discussion paper provides commentary on "Does the deferred tax asset valuation allowance signal firm creditworthiness?"
Author: Gregory S. Miller
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
This paper explores the determinants of the valuation allowance for deferred tax assets under SFAS No. 109. We find that, consistent with SFAS No. 109, the allowance is larger for firms with relatively more deferred tax assets and smaller for firms with higher levels of expected future taxable income. The most important explanatory variable for the valuation allowance is the level of firms' tax credit and tax loss carryforwards, consistent with these items being more difficult to realize. We find little evidence that managers use the valuation allowance for earnings management purposes, although these tests may not be very powerful.
Author: Ashleigh Bakke
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
The valuation allowance for deferred tax assets is an audited disclosure that reflects management's expectations regarding the future profitability of a company. Building on prior literature that establishes this disclosure as an indicator of future distress, we examine whether the valuation allowance is associated with auditors' going concern evaluations. We find evidence that the existence and magnitude of the valuation allowance, as well as changes in the allowance, are positively associated with the likelihood that a company receives a going concern opinion. We also find that valuation allowances are associated with reduced Type I and Type II going concern opinion errors. Our results suggest that the information related to management's plans and expectations that is reflected in the valuation allowance is viewed as incrementally relevant by auditors in their assessment of a company's likelihood of failure.
Author: Catherine M. Schrand
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
SFAS 109 allows firms to use their discretion to set arbitrarily high valuation allowances against deferred tax assets. Firms can then later use these quot;hidden reservesquot; to manage earnings. Our evidence indicates that most banks do not record a valuation allowance to manage earnings, but rather to follow the guidelines of SFAS 109. However, if the bank is sufficiently well capitalized to absorb the current-period impact on capital, the amount of the valuation allowance increases with a bank's capital. In later years, bank managers adjust the valuation allowance to smooth earnings. The magnitude of the discretionary adjustment increases with the deviation of unadjusted earnings from the forecast or historical earnings.
Author: Krishna R. Kumar
Publisher:
ISBN:
Category :
Languages : en
Pages : 57
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Book Description
An event study demonstrates that disclosures of changes in deferred tax valuation allowances (VA) provide information beyond contemporaneous earnings reports. Prior research shows that, in setting VA, managers consider the extent that taxable income is available from various sources for the realization of deferred tax assets (DTA). Our evidence supports a characterization where investors use VA disclosures to infer management's expectations about DTA realizability and future taxable income available for their realization. These findings are potentially important evidence on the implications of financial accounting standards that allow discretion in measurement. In particular, they support the view that such discretion can serve to elicit management's expectations for the benefit of investors.
Author: Chia-Ling Chao
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 336
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Book Description
Author: Christos Floros
Publisher: Springer
ISBN: 3319591029
Category : Business & Economics
Languages : en
Pages : 323
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Book Description
This book sheds new light on the Greek economic challenges and helps readers understand the current debt crisis. Chapters from leading experts in the field identify and outline potential solutions to the on-going decline of the Greek economy by considering both Eurozone-adopted current policy framework explanations and potential alternative explanations. In contrast to the standard chronological approach toward the Greek debt crisis typically adopted by other texts, this book draws on the experience and views of specialized economists and offers divergent opinions that could potentially form alternative solutions. It will be of interest to researchers and academics interested in the Greek economy, modern financial modelling, and risk management.
Author: Kautish, Sandeep
Publisher: IGI Global
ISBN: 1799877183
Category : Computers
Languages : en
Pages : 287
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Book Description
Strategic analytics is a relatively new field in conjunction with strategic management and business intelligence. Generally, the strategic management field deals with the enhancement of the decision-making capabilities of managers. Typically, such decision-making processes are heavily dependent upon various internal and external reports. Managers need to develop their strategies using clear strategy processes supported by the increasing availability of data. This situation calls for a different approach to strategy, including integration with analytics, as the science of extracting value from data and structuring complex problems. Using Strategy Analytics to Measure Corporate Performance and Business Value Creation discusses how to tackle complex business dynamics using optimization techniques and modern business analytics tools. It covers not only introductory concepts of strategic analytics but also provides strategic analytics applications in each area of management such as market dynamics, customer analysis, operations, and people management. It unveils the best industry practices and how managers can become expert strategists and analysts to better measure and enhance corporate performance and their businesses. This book is ideal for analysts, executives, managers, entrepreneurs, researchers, students, industry professionals, stakeholders, practitioners, academicians, and others interested in the strategic analytics domain and how it can be applied to complex business dynamics.
