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Mandatory disclosure and uncertain tax benefit resolutions
Dissertation

Mandatory disclosure and uncertain tax benefit resolutions

Carolyn Previti
Doctor of Philosophy (Ph.D.), Drexel University
Jun 2024
DOI:
https://doi.org/10.17918/00010690
pdf
Previti_Carolyn_20242.24 MB
PDF Embargoed Access, Embargo ends: 31 Aug 2026

Abstract

Critical audit matters Mandatory disclosure Uncertain tax benefits Auditing
I investigate the impact of mandatory disclosure on firm and regulator behavior. Uncertain tax benefit (UTB) resolutions provide a unique setting to analyze the effects of reporting on behavior, as UTB unwindings result from the interactions between tax authority and taxpayer. In Chapter I, I address the disclosure environment for UTBs. In Chapter II, as additional tax disclosure may affect the detection risk associated with tax uncertainty, I hypothesize that the previously-documented increase in UTBs following a tax critical audit matter (CAM) is supplemented by a change in UTB resolutions. I find that tax CAMs significantly affect the portion of UTBs resolving via revisions of prior estimates. Thus, disclosure of tax CAMs is shown to significantly affect how UTBs resolve. In Chapter III, I hypothesize that the reduction of UTBs post-Schedule UTP, and the associated effort to minimize Internal Revenue Service scrutiny, also affects UTB unwindings. While my results do not suggest that Schedule UTP significantly impacts how UTBs resolve, they do suggest that Schedule UTP significantly impacts when UTBs resolve. Collectively, my work identifies changes in UTB unwindings as operational consequences of both audit and private tax disclosure mandates. Specifically, the evidence suggests that while public auditor-provider disclosure affects how UTBs unwind, private firm-provided disclosure affects when UTBs unwind. Thus, information source and method of communication appear to influence the relationship between disclosure and firm and regulator behavior.

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