View Complete Reference

Morton, E (2019)

Corporate Tax Transparency Reporting and Benford’s Law

Australian Tax Forum 34(1).

ISSN/ISBN: Not available at this time. DOI: Not available at this time.



Abstract: Corporate tax transparency reporting came about due to persistent concern surrounding corporations paying their “fair share” of tax, tax avoidance or minimisation behaviour, and opportunistic earnings management. However, concern has been raised over the reasonableness of what appears to be a simple disclosure regime. This study examines the reasonableness of the tax transparency disclosures utilising the Benford’s law phenomenon. The 2014-15 corporate tax transparency report is analysed for potential abnormal digit frequencies by comparing Benford’s distribution against the observed frequencies for total income, taxable income and tax payable. Total income presents significant variation to Benford’s distribution for the first digit position, while taxable income and tax payable are considered Benford’s sets. Although the total income deviation can be explained by censorship contaminating frequencies, the findings for taxable income and tax payable indicate a very low level of error, bias or fraudulent reporting and provide somewhat compelling evidence towards the regime’s reasonableness. These findings indicate a disconnectedness between total income and both taxable income and tax payable. As such, the conversation returns to the concern raised over the disparity between the accounting and taxation systems and raises the need for further consideration of the regime’s limited scope in terms of what is, and what is not, captured.


Bibtex:
@article {, AUTHOR = {Elizabeth Morton}, TITLE = {Corporate Tax Transparency Reporting and Benford’s Law}, JOURNAL = {Australian Tax Forum }, YEAR = {2019}, VOLUME = {34}, NUMBER = {1}, URL = {https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3364716}, }


Reference Type: Journal Article

Subject Area(s): Accounting