DETECTING TAX EVASION WHEN TAX AND ACCOUNTING EARNINGS MATCH

Download This Article

Abstract

The main purpose of the present study is to examine the tax behaviour of listed companies when operating in an accounting environment characterized by a high level of book – tax conformity. According to international practice, tax evasion is estimated by using two different measures: the tax evasion rate and the tax gap. After identifying the extent of tax evasion, a number of financial statement variables are examined in order to assess the financial characteristics of the tax aggressive firms. Companies with higher rates of tax evasion have more liquidity, more debt (especially short-term liabilities), are less effective and efficient in generating earnings and are smaller in size. Companies with higher amounts of tax gap are larger in size, have more liquidity, more debt (especially short-term liabilities) and are more effective. The outcomes of the present study may assist public bodies, such as tax authorities and regulatory bodies, as well as audit firms in detecting and deterring tax evasion.

Keywords: Earnings Manipulation, Book-Tax Conformity, Tax Evasion, Fraudulent Financial Reporting, Auditing

JEL Classification: M41, M42

Date received: 1 December 2016

Date accepted: 4 February 2017

How to cite this paper: Kourdoumpalou, S. (2017). Detecting tax evasion when tax and accounting earnings match. Corporate Ownership & Control, 14(2-2), 279-288. https://doi.org/10.22495/cocv14i2c2p1