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Author: Mark P. Bauman Publisher: ISBN: Category : Languages : en Pages :
Book Description
This study examines whether managerial forecasts of annual effective tax rates, disclosed in interim financial statements, are useful in predicting future quarterly earnings, are incorporated in financial analysts' forecasts of quarterly earnings, or are impounded in stock prices. The integral view of interim financial reporting requires managers to make their best estimate of the effective income tax rate (ETR) expected to be in effect for the full fiscal year. Thus, the ETR reflected in interim financial statements represents the disclosure of certain private information regarding management's expectations for forthcoming earnings. Auditors review the income tax provision in conjunction with the release of interim financial statements, arguably lending credibility to management's ETR forecast. Our empirical analyses show that interim effective tax rate disclosures are useful in predicting next-quarter earnings. However, financial analysts generally underutilize this information when firms report large decreases in ETR. Surprisingly, small ETR increases are related to higher future earnings, and a zero-investment strategy based on small ETR increases yields significant abnormal returns. In sum, although interim ETRs are useful in predicting future earnings, both financial analysts and stock market investors fail to fully impound the earnings implications of interim effective tax rate changes in their decisions.
Author: Mark P. Bauman Publisher: ISBN: Category : Languages : en Pages :
Book Description
This study examines whether managerial forecasts of annual effective tax rates, disclosed in interim financial statements, are useful in predicting future quarterly earnings, are incorporated in financial analysts' forecasts of quarterly earnings, or are impounded in stock prices. The integral view of interim financial reporting requires managers to make their best estimate of the effective income tax rate (ETR) expected to be in effect for the full fiscal year. Thus, the ETR reflected in interim financial statements represents the disclosure of certain private information regarding management's expectations for forthcoming earnings. Auditors review the income tax provision in conjunction with the release of interim financial statements, arguably lending credibility to management's ETR forecast. Our empirical analyses show that interim effective tax rate disclosures are useful in predicting next-quarter earnings. However, financial analysts generally underutilize this information when firms report large decreases in ETR. Surprisingly, small ETR increases are related to higher future earnings, and a zero-investment strategy based on small ETR increases yields significant abnormal returns. In sum, although interim ETRs are useful in predicting future earnings, both financial analysts and stock market investors fail to fully impound the earnings implications of interim effective tax rate changes in their decisions.
Author: Mark P. Bauman Publisher: ISBN: Category : Languages : en Pages : 28
Book Description
This study examines the usefulness of interim income tax disclosures in predicting future earnings and analysts' forecast errors. The integral view of interim financial reporting requires managers to make their best estimate of the effective income tax rate expected to be in effect for the year. Thus, the effective tax rate disclosed in the first quarter's Form 10-Q potentially provides some private information regarding management's expectations for forthcoming earnings. Our analyses show that these interim tax rate disclosures are useful in predicting future earnings and, in addition, are positively related to analysts' forecast errors. The results suggest analysts underutilize effective tax rate information in interim disclosures that could be used to improve the accuracy of their earnings forecasts.
Author: Stephen P. Baginski Publisher: ISBN: Category : Languages : en Pages : 58
Book Description
The capital market benefits of high quality financial reporting create incentives for managers to signal the quality of their voluntary disclosure practices. Prior research focuses on the relations between observable measures of earnings quality and observable measures of voluntary disclosure quality. We examine the characteristics of management earnings forecasts during periods in which managers possess private (i.e., unobservable to the market) knowledge that they are engaging in financial misreporting (i.e., committing accounting fraud). Using a sample of Securities and Exchange Commission enforcement actions, we hypothesize and find that managers issue more bad news forecasts in periods of fraud relative to pre-fraud periods and control firms, consistent with the increased use of voluntary disclosure to manage expectations downward while violating constraints on earnings management. The fraud period forecasts are, when compared to fraudulent earnings observed by the market, less ex post biased and more accurate than pre-fraud period forecasts and thus give the appearance of higher quality voluntary disclosures. However, the fraud period forecasts are not less ex post biased or more accurate when accounting restatements later reveal true actual earnings. A consequence of the perceived increase in quality is greater bad news fraud-period forecast impact on prices relative to pre-fraud periods. Further, the enhanced price reactions do not deteriorate after the fraud is made public, suggesting that the public revelation does not taint investors' assessment of the credibility of bad news management forecasts.
Author: Canadian Institute of Chartered Accountants Publisher: ISBN: Category : Business & Economics Languages : en Pages : 212
Book Description
From the Executive Overview: In View of the importance of interim reporting, this Research Report reviews "CICA Handbook Section 1750" and makes recommendations to update accounting standards on "Interim Financial Reporting to Shareholders". It discusses the primary objectives of interim reporting predicated on the users and the uses of interim reports, and portrays tlhe reporting environment comprising legal requirements, accounting standards and current practices. It also evaluates alnd suggests possible solutions to interim reporting problems about applicability, presentation and disclosure, measurement and recognition, and other matters.
Author: AICPA Publisher: John Wiley & Sons ISBN: 194354686X Category : Business & Economics Languages : en Pages : 256
Book Description
This resource provides interpretive guidance and implementation strategies for all preparation, compilation examination and agreed upon procedures on prospective financial information: Helps with establishing proven best-practices. Provides practical tools and resources to assist with compliance. Exposes potential pitfalls associated with independence and ethics requirements. SSAE No. 18 SSARS No. 23 Preparation and compilation engagements now fall under the SSARSs The attestation engagements require an assertion from the responsible party
Author: Mark P. Bauman
Author: Mark P. Bauman
Author: Mark P. Bauman
Author: A.T. Kearney, Inc
Author: Stephen P. Baginski
Author: James W. Edwards
Author: Financial Analysts Federation
Author: Canadian Institute of Chartered Accountants
Author: Phyllis S. McGrath
Author: AICPA
Author: P. R. Shapland