Accounting for Income Taxes: Primer, Extant Research, and Future Directions

This monograph comprehensively reviews the Accounting for Income Taxes (AFIT) literature. We begin by identifying four distinctive aspects of AFIT. We cover the rules surrounding AFIT and provide a discussion of the descriptive studies related to AFIT. We then review the existing research studies in detail and offer suggestions for future research. We focus on the two research questions that have been most widely studied (the extent to which managers use the tax accounts to manipulate earnings and whether equity market participants price the tax accounts). We discuss econometric issues that apply to AFIT and more broadly apply to much accounting and economics research. We also highlight areas that have not received much research attention and that warrant future analysis.

This review includes material that was originally published in Graham, J., Raedy, J., Shackelford, D., 2012, "Research in the Accounting for Income Taxes," Journal of Accounting and Economics. That publication and this one have benefited from outstanding research assistance by Justin Hopkins, Margot Howard, Hyunseob Kim, Kevin Markle, Jenna Meints, Jake Thornock, and Kelly Wentland and helpful comments from Jeff Abarbanell, Scott Dyreng, Jonathan Forman, Mary Margaret Frank, Ed Maydew, Lillian Mills, Richard Sansing, Casey Schwab, Jeri Seidman, Stephanie Sikes, Dan Taylor, Ross Watts, the Texas Tax Readings Group, and participants at the UNC Tax Symposium and the National Tax Association annual conference.