Research On Book-Tax Income Difference Due To Earnings Management In China

Since the target of accounting is to provide useful information for decision makers but the target of corporate income tax is tax collection, the difference between accounting standards and income tax regulations becomes obvious.However, accounting and corporate income tax stays in contact with each othenthe confirming,measurement,recording and reporting of the whole operation process by accounting creates a foundation for calculating corporate income tax. And lots of countries in the world have issued accounting principles on income tax,so income tax law influences accounting on various aspects.Therefore,it is very meaningful to study the interactive relationship between accounting and corporate income tax. How enterprises will react facing the difference between them also worth discussing. At present there are some such studies abroad,but in China the overwhelming majority of current studies is in qualitative way and only a small number of studies in the background of old rules is in quantitative way.Thus, more meticulous and further research on book-tax relationship in the background of the system in our country is definitely valuable.In the background of our new accounting standards(implementing from January 1,2007) and new enterprise income tax law(promulgated on March 16,2007 and implementing from January 1,2008),this paper tries to analysis influencing factors which lead to the difference between taxable income and accounting profit before tax(hereinafter referred to as book-tax income differences),and tries to explore how to calculate book-tax differences and discretionary book-tax difference from accounting statements of a listed company.Besides,the author also wants to investigate the implementation effects of new income tax law.That includes variation trend of book-tax differences and discretionary book-tax difference,and the link between the trend and earnings management of listed companies in our country. On this basis,the auther makes further discussion on whether the listed companies in China use the difference between accounting standards and corporate income tax regulations for earnings management,and how they make use of the difference.Study results of this paper are expected to validate the practice effect of new income tax laws on the area of synergy with accounting standards for business enterprises and on intention of anti-tax avoidance. So the study results can provide some evidence for the change of interaction of the enterprise accounting standards and income tax law.Furthermore,the auther wants to explore how to deal with linkage relationship of accounting standards and enterprise income tax laws in the reform of the future,that means,regulates the disclosure of tax related information so as to realize tax justice and to promote the efficiency of the capital market.In the study the author adopts both normative analysis method and empirical research method.First,the author proffers a review of documents in the field. After that, from the point of view of system the author analyzes two kinds of typical mechanisms on account-tax relationship,and analyzes evolution process of the relationship mechanism in our country.Based on analysis of the account-tax relationship in the new enterprise income tax reform background,the writer established two hypotheses as follows:After reform of enterprise income tax,a listed company's book-tax income difference and the discretionary part are both narrowed(the first assumption).Listed companies manipulates book-tax income difference so as to avoid tax cost of earnings management; After reform of enterprise income tax,listed companies suffers more tax cost for the behavior of earnings management.The studies of this paper confirm that listed companies in our country do manipulate book-tax income difference so as to avoid tax cost of earnings management.And the loss of asset impairment and investment income leads to most of the difference. Profitable companies intends to adopt accounting policy which can produce higher accounting profit before tax but never increase tax expense.However,this condition have changed since the implementation of new enterprise income tax law. Compared with the year before,playability book-tax income difference of Chinese listed companies declines in the overall size.After the reform, discretionary book-tax income difference which is leaded by earnings management reduces in the overall size.Finally, the author proposes feasible solutions to how to suppress discretionary book-tax income difference in view of moderate separation characteristics of the account-tax relationship in our country.In the opinion of the author,the best solution is to require listed companies to disclose some information of income tax such as the applicable tax rate,taxable income and income tax expense.