TAXING TRANSPARENCY: UNRAVELING THE DYNAMICS OF TAX EXPENSE SURPRISES IN ADVANCEMENTS OF ACCOUNTING FOR INCOME TAXES

Abstract

The field of Accounting for Income Taxes (AFIT) has evolved considerably in recent years, with an increased focus on its implications for financial reporting. This paper delves into one of the newer areas within AFIT research: tax expense surprise or momentum. Tax expense surprise represents changes in tax expenses over a given period and has been found to possess added value relevance for stock pricing. This survey reviews the recent developments in the tax expense surprise research field since Graham et al.'s (2012) survey and identifies pertinent issues that warrant further investigation. The analysis primarily focuses on the controversial aspect of tax expense pricing studies. Notably, this paper does not encompass earnings management studies related to managers' manipulation of tax expenses to meet analysts' forecasts or descriptive studies that examine the utility of book information for estimating tax data. Additionally, research on the effect of tax expense information on contemporaneous stock returns is outside the scope of this paper due to the limited number of studies and a lack of significant contentious issues in those areas. This survey seeks to provide insights into tax expense surprise research, highlight unresolved questions, and suggest future research directions to promote a deeper understanding of this evolving field of study.