In the beginning of 2011, companies listed in the Korean securities market
have mandatorily adopted the International Financial Reporting Standard (IFRS).
Most existing studies on the economic consequences that result from IFRS adoption
have focused on financial reporting, whereas studies that approach the subject
with respect to tax reporting are limited (Schadewitz and
Vieru, 2009; Lin and Yen, 2011; Kim
and Kang, 2010; Jung, 2012). For example, most
studies focus on issues in tax law that have resulted from IFRS adoption, how
to address these problems and the appropriateness of the tax law amendment that
pertained to tax accounting (Haverals, 2007; Oestreicher
and Spengel, 2007; Lee, 2007; Kim,
2008; Kim and Lee, 2008; Shim,
2010). In addition, existing studies may be limited to generalizing their
findings, such as the analyses on the consequences of the adoption of IFRS,
because of the limited sample of corporations that adopted IFRS in its early
stage in 2009. Therefore, to conduct a comprehensive empirical analysis, researchers
should investigate not only the corporations that have adopted IFRS in its early
stage but those firms that adopted IFRS mandatorily as well.
With these consideration, the samples of this study include both the listed
corporations in Korea that have adopted IFRS since 2009 and firms that adopted
IFRS in 2011, with emphasis on the effect of IFRS adoption in tax accounting.
In particular, this study focuses on the fees for tax adjustment paid to tax-practitioners
by tax payment obligors and analyzes empirically to find out whether or not
the fees for tax adjustment has increased since IFRS adoption. In addition,
the study looks into the effects of the consultation related to IFRS offered
by tax-practitioners on the correlation between IRFS adoption and the fees for
The hypotheses for this study are as follows. First, the current tax laws in
Korea have adopted a quasi-dependent approach to financial accounting standards
except for special items. The application of a new accounting standard which
is the IFRS, is expected to introduce certain changes in the application of
tax laws. Thus, this study anticipates that the time and effort made for tax
adjustment will increase which will result in the rise in tax adjustment fees
if there are changes in the accounting standard for calculating accounting income.
Specifically, this study examines when corporate tax law is preferentially applied
in the process of calculating taxable income to financial accounting standard
and when the latter is complementally applied. Owing to the greater difference
between IFRS and tax law than between conventional financial accounting standards
and tax law, input costs, such as time and effort exerted by tax practitioners
during tax adjustment, may increase (Shim, 2010).
Second, this study anticipates that in the event that a tax practitioner performed any IFRS-related consultation, they will be able to perform tax adjustment more efficiently because of their better understanding of accounting and tax treatment based on IFRS than practitioners offering no consultation. Tax practitioners will be able to reduce input costs for tax adjustment by saving the time and effort that were supposed to be considered in the tax adjustment through the knowledge spillover phenomenon between auditing and consultation. Consequently, IFRS-related consultation provided by tax practitioners is expected to reduce the increase in tax adjustment fees.
This study is meaningful in that it analyzes the effect of the adoption of IFRS in tax accounting, with the possible contribution of informing tax offices with policy implications that tax compliance costs can be mounted on tax payment obligors because of the new accounting standard.
The study is organized as follows. Section II reviews some previous studies on IFRS adoption and the correlation between IFRS adoption and audit fee to develop the hypotheses. Section III discusses the study model and the process of selecting the study samples. Section IV provides the results of the empirical analysis and its interpretation. Finally, Section V concludes the study and presents its limitations.
PREVIOUS STUDIES ON THE CORRELATION BETWEEN IFRS ADOPTION AND TAX/TAXATION
Haverals (2007) proposed that the IFRS-based tax accounting
might increase the tax burden of Belgian corporations up to an average of 3.8-14.6%.
In particular, the result of the analysis by industry revealed an increase in
tax burden by 14.6% in the construction industry with a larger part of inventories
and tangible assets and 8.8% in the automobile, food and soda industries. In
addition, Oestreicher and Spengel (2007) studied the
effect of IFRS on the tax burden of corporations and discovered that considering
the wide acceptance of IFRS among managers for accounting treatment, incentives
can be provided to encourage them to make the tax burden as low as possible
through accounting. Oestreicher and Spengel (2007)
argued that taxable income could be reduced by utilizing accounts, such as capitalization
of depreciation, asset evaluation and R and D costs, in which the discretion
of managers can be applied. Considering that local and foreign studies provide
insights through simulation and not through the use of actual finance and tax
data, concluding that IFRS has any significant effect on the burden of tax or
taxation may be too much.
Furthermore, a study in Korea by Lee (2007) proposed
that the adoption of IFRS which applies fair value evaluation, can result in
a larger transitory difference between corporate accounting and tax accounting.
Thus, corporations will be divided into firms that apply IFRS and firms that
apply GAAP which results in confusion in tax law application. Moreover, he argued
that as the current tax law accepts varied applications of corporation accounting
standard, an attempt should be made to discover a method to distinguish between
financial and tax accounting as IFRS adoption results in some changes in taxable
earnings. In a study that analyzed the effect of IFRS adoption on corporation
tax adjustment, Kim (2008) argued that taxable earnings
could be influenced by closing adjustments, such as allowance for bad debts
in financial institutions, insurance reserves and depreciation of tangible and
intangible assets. In addition, Kim (2008) stated that
the choices for accounting policies will expand and that corporations will likely
choose the accounting treatment policies that will minimize their tax, while
taxation regulations for closing adjustment remain.
Kim and Lee (2008) reported that a corporation may
not benefit from deduction because with the adoption of IFRS, the Corporate
Tax Act does not allow for closing adjustments to be approved for exclusion
or, if ever, only minimally. Moreover, Kim and Lee (2008)
proposed a method of revising taxation regulations that will convert closing
adjustment into return adjustment and a method of regulating asset impairment
losses or loss on evaluation to be transformed into depreciation. Lee
and Choi (2009) stated that the least provisions ratio of allowance for
bad debts which is a classification standard for forward looking criteria, is
applied to loans at the closing of financial institutions. Thus, if IFRS were
applied in the current situation, the impairment loss may be different from
the actual tax burden. To resolve this problem, Lee and
Choi (2009) proposed that the tax law be revised to allow for bad debts
among financial institutions and corporations to be transformed into return
The above studies on the effects of adopting IFRS in tax adjustment for tax accounting and tax burden are limited in that these do not apply an empirical approach; that is, these studies utilized financial statements and tax return data on the application of IFRS but only suggested solutions for the problems caused by the adoption of IFRS. Thus, to differentiate this study from previous ones and to analyze the economic consequences of IFRS adoption along with the utilization of financial data made from IFRS adoption since 2011, the effect of IFRS adoption and consultation on the fees for tax adjustment is analyzed by focusing on corporations listed in the securities markets from 2008-2011.
In general, the current tax laws of Korea have adopted the quasi-dependent
approach (Newton (2006)1
which does not require financial and tax accounting books to be drawn separately.
This approach does not differ from the financial accounting standard, except
for any special parts (Lee and Choi, 2009). In this
regard, we can refer to Article 20 or the Framework Act on National Taxes and
Article 43 or the Corporate Tax Act. Article 20 indicates that the practices
or financial accounting standards that are still being applied by tax payment
obligors should be respected and regarded as fair and reasonable when investigating
and determining the assessment standard of the years national taxes. Article
43 specifies that when calculating the amount of earnings of each business year,
if local corporations have applied the fair and reasonable standard for financial
accounting for a revertible business year of inclusion and exclusion as well
as for asset and debts acquisition and evaluation or conventional practices,
the standard of the business year or practices should be applied, except for
any regulations specified by the said acts or the special tax treatment control
law. Similarly, the approach for Korean tax treatment involves the application
of the tax adjustment based on the accounting income of corporations when calculating
taxable income. Here, the Corporate TaxAct is preferentially applied to financial
accounting standard which may be applied complementally.
If the accounting standard in calculating the accounting income involves changing
the application of tax accounting, the time and effort spent on tax adjustment
will increase compared with that of a conventional accounting standard. Similarly,
the complexity and scope of auditing will increase along with the adoption of
IFRS. That is, corporations that have adopted IFRS in the early stage may increase
the variation and adjustment level of the financial condition and business performance
of the firm through the application of new accounting standards (Jung,
2012). Principle-based IFRS will determine the accounting treatment of managers
as the existing regulation-based accounting standards are expanded. Consequently,
with the adoption of IFRS, auditors should maintain their professional integrity
and handle more extensive auditing work (Marden and Brackney,
2009). Thus, we can expect additional costs in the tax adjustment process,
because the tax law is different from accounting practices, particularly in
the financial statements drawn in accordance with financial accounting standards
in tax accounting.
Considering that the tax adjustment fees will increase along with the increase in input costs for tax practitioners (such as the time and effort spent in the course of tax adjustment after the adoption of IFRS), the following hypotheses have been developed.
Hypothesis 1: With all other conditions being equal, tax adjustment
fees will increase after the adoption of IFRS.
During the course of IFRS adoption, when tax practitioners (being auditors
at present) provide corporations with advice and consultation for the adoption
of IFRS, knowledge spillover can occur between consultation and tax treatment,
or between the audit and non-audit areas (Simunic, 1984).
Given that a tax agents appreciation for IFRS and the accounting treatment of corporations based on IFRS may be better than others, the time and effort supposed to be exerted in the course of calculating taxable income from accounting income, as calculated while conducting audit and IFRS consultation, can be relatively reduced. That is, while conducting IFRS consultation, tax practitioners not only can limit any additional effort resulting from the difference between IFRS and conventional financial accounting standard but perform tax adjustment more efficiently as well, in which tax practitioners calculate taxable earnings according to the tax law regulations. Consequently, both IFRS consultation and tax adjustment service by tax practitioners are expected to have a negative (-) effect on the correlation between IFRS adoption and the tax adjustment fees.
Hypothesis 2: The consulting services related to IFRS adoption by tax
practitioners will have a negative (-) effect on the correlation between IFRS
adoption and the tax adjustment fees.
This study aims to identify the effect of IFRS adoption and IFRS-related consultation by tax practitioners on the tax adjustment fees. Equation 1 was established for this purpose. In Eq. 1, natural logarithm value [Ln(TaxFee)] of the tax adjustment fee is defined as a dependent variable. The Adoption of the variable of key interest is set as 1 for the year after IFRS adoption and 0 otherwise. Consulting is a dummy variable which equals 1 if any tax agent provided consultation regarding IFRS adoption and 0 as a dummy variable if otherwise. The variable of AdoptionxConsulting, an interaction variable between Adoption and Consulting, is set as 1 if the consultation related to IFRS is offered by tax practitioners after IFRS adoption and 0 otherwise:
||Natural logarithm of tax adjustment fees services
||Rate of change of audit fee(= (tax service feei,t -tax service
feei,t-1) over tax service feei,t-1)
||Dummy variable, 1 if the firm adopted IFRS and 0 otherwise
||Dummy variable, 1 if any consulting service related to IFRS adoption is
offered by the auditor and 0 otherwise
||Dummy variable, 1 if the auditor is in alliance with BIG4 and 0 otherwise
||Dummy variable, 1 if the audit of the current auditor is initial (first)
and 0 otherwise
||Natural logarithm of sales
||Return on assets
||Debt to total assets
||Dummy variable, 1 if the firm reports net loss and 0 otherwise
||Industry dummy variable (KIS 2digits)
Adoption at Eq. 1 is a variable used for verifying Hypothesis 1. As the cost spent on tax adjustment of accounting income into taxable earnings after the adoption of IFRS may be higher than that of accounting income under a conventional accounting standard, β1 will have positive (+) coefficient if the tax adjustment fees increases after the adoption of IFRS. The variable AdoptionxConsulting aims to analyze the effect of the auditors IFRS consultation on the positive (+) correlation between IFRS adoption and the tax adjustment fees. If hypothesis 2 is supported (that is, the accounting income resulting from the IFRS adoption through IFRS consultation for tax regulation will reduce the input costs for performing tax adjustment), β3 will have a negative (-) coefficient under the control of the consulting variable.
The control variable controls the effect on the tax adjustment fees. The study
model includes the fame of the tax agent which is a key determinant for tax
adjustment fees (BIG4), experience of the tax agent (INITIAL), size of sales
(SIZE), Return On Assets (ROA), financial pressure (LEV), loss (LOSS) and type
of business (ΣIND) (Shin, 2004; Lee
et al., 2008; Lee and Hong, 2009; Yoon, 2011). First, as for BIG4, the more prestigious tax practitioners will provide
a higher quality of tax adjustment service and are likely to include more input
service costs to protect their reputation. Thus, BIG4 is expected to have a
positive (+) correlation with the dependent variable of tax adjustment fee (Lee
and Hong, 2009; Yoon, 2011). Initial audit which is the variable representing
the experience of tax agents, is expected to have a negative (-) coefficient,
given that those with more experience may demand a higher tax adjustment fee.
SIZE which is a natural logarithm value of sales, is included in most studies
as a factor influencing the tax adjustment fees. Corporations with larger sales
are expected to have higher input costs in the effort towards tax adjustment
because their transactions and costs are considerably complex (Shin, 2004).
Accordingly, SIZE will have positive (+) correlation with the tax adjustment
fees. Furthermore, with ROA, corporations with higher profitability will have
more disturbances during tax adjustment and more political costs because of
the demand for tax compliance by tax offices. Consequently, ROA will serve as
a factor for increasing tax adjustment fees (Lee et
Debt ratio or LEV is a variable pertaining to long-term financial stability. Given that high debt ratio implies lower financial stability, LEV can allow for an object to be monitored by IRS. Moreover, considering that the disturbances in tax adjustment depend on financial stability, tax adjustment fees may vary. Thus, LEV is expected to have a statistically significant correlation with tax adjustment fees. As for LOSS, given that there may be any loss during tax treatment because of term loss, the disturbances to tax adjustment may not be significant. As such, LOSS is expected to have a positive (+) effect on tax adjustment fees (Yoon, 2011). Industrial dummy variable (ΣIND) is considered to have an effect on the disturbances to tax adjustment, depending on the scope of the application of tax law by businesses.
Sample selection: After utilizing financial data on companies listed
in Korean securities markets from 2008-2011, extracted from TS-2000 (Korean
Database) and the non-audit fee data disclosed on the electronic disclosure
system of FSS (KFSS, 2008), study samples were selected
based on the following criteria2:
||Corporations closing at the end of December, except for the
||Impairment of capital and corporations for administration are excluded
||Corporations that have disclosed incorrect data, such as erroneous coefficients,
in financial statements are excluded
||Samples with less than 10 items by industry are excluded
From the samples that satisfy the above requirements, the final 1,894 firm-years
were selected. Table 1 shows the selection process. From the
first 1,956 firm-year samples, excluded were 124 firm-years that disclosed missing
data on audit fee material or incorrect financial data and 37 firm-years with
capital or administrative impairment.
|| Sample selection
In addition, 101 firm-years which are samples that have less than 10 items
in the same industry and business type, may be selected as samples such that
the final sample is 1,694 firm-years3.
RESULTS AND DISCUSSION
Descriptive statistics of major variables: Table 2
shows the descriptive statistics of the variables used for this study. The tax
adjustment fee paid to tax agents which is a natural logarithm value of the
tax adjustment fees, has a distribution of 6.044-8.738 and an average of 7.159.
The samples (Adoption), to which IFRS was applied, include 454 year-corporations
which is about 26.8% out of the total samples. The samples (Consulting) which
are related to IFRS as offered by current tax-practitioners, were found to be
287 year-corporations which averaged 16.9%4. Among
the control variables, the samples that were audited through BIG4 were 174 year-corporations
which was 10.3% out of the total samples, whereas the samples of INITIAL show
39.9%. SIZE, the natural logarithm value of the amount of the sales, shows a
distribution of 14.070-25.517, with an average of 0.93. Moreover, ROA shows
the scope of 3.477-0.914 with an average of 0.016. The LEV and LOSS have averages
of 0.438 and 0.21, respectively.
Result of regressive analyses: Hypotheses verification: Table
3 shows the results of the analysis of IFRS adoption and the IFRS-related
consultation with respect to the tax adjustment fees. The F value of the model,
256-270, is not generally considered to have goodness of fit for the model and
Adj.R2 ranges from 21-23%.
|| Descriptive statistics (N = 1,694)
|Variable definition: Ln(Tax_Fee) is the natural logarithm
of a fee for tax adjustment. Adoption is the dummy variable, 1 if firm has
adopted IFRS and 0 otherwise. Consulting is the dummy variable, 1 if any
consulting service relating IFRS adoption is offered by auditor and 0 otherwise.
BIG4 is the dummy variable, 1 if auditor is in alliance with BIG4 and 0
otherwise. INITIAL is the dummy variable, 1 if the audit of current auditor
is initial (first) and 0 otherwise. SIZE is the natural logarithm of sales.
ROA is the return on assets. LEV is the debt to total assets. LOSS is the
dummy variable, 1 if firm reports net loss and 0 otherwise
|| Regression result, the effect of IFRS adoption and consulting
on Tax Adjustment service fees
|*,**,***Significant at the 0.1, 0.05 and 0.01 two tailed levels,
respectively, (): t-stat, Observations are 1,694 firm-years
The VIF value among the variables was less than 3. Furthermore, the problem
of multicollinearity is not found to be significant. First, (1) the consideration
of Adoption alone shows a level of statistical significance at 0.089 (p<0.001)
and 0.067 (p<0.05), 0.239 (p<0.05) for (3) and (4), respectively in Table
3. Thus, the values are statistically significant. These results can be
considered as the input costs of tax practitioners which can be high because
of the increased time and effort exerted on tax adjustment in accounting income
in respect of IFRS to taxable earnings than conventional accounting standards
and that the difference between IFRS and tax law may be greater than that between
conventional financial accounting standards and tax law. Consequently, hypothesis
1 is supported and the tax adjustment fees [Ln(Tax_Fee)] would be higher after
the adoption of IFRS.
Consulting variables included in 2 and 3 in Table 3 show 0.118 (p<0.05) and 0.111 (p<0.05), respectively. These results are interpreted to be at the level of statistical significance despite the consultation of tax practitioners relating to IFRS at the time of IFRS adoption the tax adjustment fees increased. This outcome is due to the excessive disturbances in tax adjustment in the process of calculating taxable earnings from the accounting income, as calculated with the application of IFRS. Likewise, even when controlling the Consulting variables in 4, the interaction variable (AdoptionxConsulting) shows a level of statistical significance of 0.474 (p<0.05). Therefore, with the services of the auditor for three areas of auditing, consultation for tax adjustment and that related to IFRS, the time and effort required for tax adjustment could be reduced because of the effect of knowledge spillover in other areas. Consequently, hypothesis 2 is supported. While tax practitioners are providing consultation or advising services on the IFRS accounting system design of taxpayers, any additional effort for tax adjustment caused by the difference between conventional accounting standards and IFRS can be reduced. In addition, calculating taxable earsnings can now be more efficient.
Among the control variables included in the study model as factors influencing
tax adjustment fees, BIG4 indicates a negative (-) correlation at the level
of statistical significance which is contrary to the findings of Lee
and Hong (2009) and Yoon (2011) that more prestigious
tax practitioners gain more tax adjustment fees. This result can be explained
by the fact that the importance of tax adjustment can decrease when both tax
adjustment and audit are conducted than when tax practitioners perform tax adjustment
only. Therefore, given that the fee for auditing or other non-auditing services
is higher compared with that of tax service in revenue structure of accounting
firms, the fame of tax practitioners do not have much effect on the fee for
tax service (Yoon, 2011). Furthermore, the coefficient
of INITIAL indicates a negative (-) sign which is statistically significant.
Its result, that is, any initial audit resulting from the replacement of auditors
causes the tax adjustment fees to decrease, corresponds to the findings of Shin
(2004) that the more experienced tax practitioners receive higher tax adjustment
SIZE, LEV and LOSS show statistically significant results as expected. Although,
the sign of ROA is the same as expected, it is not statistically significant.
Similarly, Shin (2004), Lee and
Hong (2009) and Yoon (2011) confirm that when higher
sales result in greater term loss, financial stability will have more effects
on the tax adjustment fees.
Table 4 shows the analysis results of dependent variables
when the change rate of the tax adjustment fees (Δtax_Fee) is replaced
for natural logarithm value [Ln(Tax_Fee)] of the tax adjustment fees.
|| Regression result 2, the effect of IFRS adoption and consulting
on change of Tax Ajustment service fees
|*,**,***Significant at the 0.1, 0.05 and 0.01 two tailed levels,
respectively, (): t-stat, Observations are 1,694 firm-years
The change rate of the tax adjustment fees is more useful in analyzing the
direct effect of IFRS-related consultation on the annual fee. Adoption shows
statistically significant positive (+) correlation at 1 and 3 which supports
hypothesis 1 and is similar to the results in Table 4. Thus,
the costs for tax adjustment should be high because more time and effort may
have been spent on the process of adjusting accounting income into taxable earnings
under IFRS. In the (4) of Table 4, interaction variable (AdoptionxConsulting)
indicates a statistically significant negative (-) correlation as well, with
the Consulting factors related to IFRS being controlled. This result supports
hypothesis 2, that is, when the tax practitioners conduct consultations for
IFRS, they can perform tax adjustment more efficiently.
Among the control variables, ROA shows a statistically significant positive (+) correlation, unlike in Table 3. Therefore, more disturbances to tax adjustment may be found during the stage of the higher growth of corporations, given that taxpayers with a higher rate of return are likely to suffer more changes in the tax adjustment fees. However, BIG4, INITIAL, SIZE and LEV do not show statistically significant results which is a result of the difference in the distribution of variables as the dependent variables represent the change rate.
Effect of IFRS adoption by the industry and IFRS-related consultation on tax
adjustment service fees: Using the model of this study, this additional
analysis seeks to determine if the effect of the adoption of IFRS and IFRS-related
consultation has any difference among the industries. Based on the results of
Shin (2004), Lee et al. (2008)
and Lee and Hong (2009), the differences of business
type and industry determine tax adjustment fees. Table 5 shows
the results of the analysis of the industries that comprise the entire sample.
With the entire industries, the tax adjustment fees [Ln(Tax_Fee)] after IFRS
adoption have a statistically significant positive (+) sign. That is, more time
and effort are spent on the process of tax adjustment after the adoption of
IFRS in the industry as a whole.
|| Effect of IFRS adoption and consulting on Tax Adjustment
service fees by industry
|*,**,***Significant at the 0.1, 0.05 and 0.01 two tailed levels,
respectively, (): t-stat
A statistically negative (-) sign was found In the β3 non-metallic mineral products industries, food and soda industries, electronics, imaging equipment, audio system and communication equipment manufacturers and pulp, study, study product manufacturers. This observation indicates that, although IFRS adoption generally causes the disturbances on tax adjustment to increase, the four industries reduced the degree of the increment of tax adjustment fees paid to tax practitioners that provided IFRS-related consultation services.
CONCLUSION AND LIMITATIONS
This study was performed to test whether the applications of conventional financial accounting standard and of IFRS show any influence in cost input to tax adjustment by tax practitioners when calculating taxable earnings from accounting income. In this study, 1,694 year-corporations were selected. The service of tax adjustment was offered by auditors from 2008-2011, with the goal of determining whether there was any difference in the tax adjustment fees and the effect the IFRS-related consultation had on the correlation between IFRS adoption and tax adjustment service fees. The results of the study are as follows. First, a statistically significant positive (+) correlation between IFRS adoption and tax adjustment fees was observed which may be caused by the greater difference between IFRS and tax law than that between conventional financial accounting standards and tax law. Moreover, owing to the increase of the tax adjustment fees after the adoption of IFRS, more input cost, such as time and effort, is spent by tax practitioners on the adjustment of the accounting income calculated through IFRS into taxable earnings than through conventional financial accounting standards.
Second, the consultation elated to IFRS by tax practitioners was observed to reduce (-) the correlation between IFRS adoption and tax adjustment fees. Thus, in general, the tax adjustment fees increased after IFRS adoption. Moreover, if tax practitioners conducted IFRS consultation, the degree of the increase declines which may be the cause of knowledge spillover across different areas, such as the appreciation of the accounting and tax treatment of taxpayers during the consultation of tax agents for the design of IFRS accounting system and the taxation burden of IFRS. In addition, the tax agents, who can reduce such input costs as time and effort in the course of tax adjustment with respect to using IFRS in taxable earnings, can make tax adjustments more efficient.
Furthermore, after the analysis that determined whether the adoption of IFRS by the industry has made any difference in the tax adjustment fees, this study analyzed whether IFRS-related consultation contributed to the reduction of the tax adjustment fees for non-metallic mineral product industries, food and soda industries, electronics, imaging equipment, audio system and communication equipment manufacturers and pulp, study product manufacturers. However, tax agent consultation was confirmed to have no statistically significant effect on the efficiency of tax adjustment in other machine and equipment manufacturers, automobile and trailer manufacturers, initial metal products industry and compound and chemicals industry.
Nevertheless, interpreting the study results should be made with caution because
of the following limitations. First, the study samples included only the fees
paid to auditors for tax adjustment and consultation related to IFRS. That is,
the subject of the analysis focused only on corporations that obtained audit,
tax adjustment and consultation services from the same accounting firm at the
same time. Accordingly, further analysis of the effect of IFRS adoption and
IFRS-related consultation on the tax adjustment fees needs information on whether
the corporations themselves conducted their own tax adjustment and IFRS consultation
and data on the fees paid to the auditors and external experts for tax adjustment
and consultation. Second, although this study considers only the economic consequences
of IFRS adoption with respect to tax accounting, the analysis that includes
the audit area of financial accounting is necessary for a more precise and efficient
analysis, as only one side being examined cannot facilitate the analysis of
the factors affecting the decision making of managers. According to Scholes
et al. (2002), both tax and non-tax costs should be considered in
designing an efficient plan for tax accounting.
Despite the above limitations, the results of this study are meaningful in
that it analyzed the effect of the adoption of IFRS with respect to tax accounting.
In addition, the present study contributed to the proposal of policy implications
that introducing any new accounting standard in financial institutions and tax
offices which may increase the compliance cost for taxpayers.
1Newton (2006) proposed
three approaches for IFRS adoption policy with respect to tax accounting, namely,
the independent, dependent and quasi-dependent approach. The independent approach
involves drawing and separately maintaining an IFRS and tax accounting books,
with the application of a special tax accounting at calculating taxable earnings
separate from IFRS. The dependent approach does not require IFRS and tax accounting
books to be drawn separately which serve to match accounting income with taxable
earnings. In the quasi-dependent approach, no separate tax accounting book is
required and thus allows for the application of tax law for specific areas and
of IFRS for the rest in calculating taxable earnings
2The samples for this study are limited to 2008-2011
to analyze the change in the tax adjustment fees from 2009 when IFRS adoption
in the early stage was allowed and to the year when IFRS was aggressively adopted
3The samples by industry are 420-430 firm-years
and about 76% of these samples include other machine and equipment manufacturers
(112), non-metallic mineral products industries (88), food and soda industries
(137), automobile and trailer manufacturers (148), electronics, imaging equipment,
audio systems and communication equipment manufacturers (139), metal initial
products industry (172), pulp, paper, paper products manufacturers (120), compound
and chemicals industry (618) and other various industries and business types.
In particular, the industry or business-type of the samples that were less than
10 are excluded from this study. These eight industries primarily constitute
the sample that need to be analyzed to determine whether they are engaged in
the relationship between additional IFRS adoption by industry and the fee for
consultation and tax adjustment by auditors.
4The samples of this study are limited to the data
on the fees paid to the auditors for non-auditing of the business report disclosed
in the FSS electronic disclosure system. As such, the tax adjustment fees or
the consultation related to IFRS should be assumed to have been conducted by
the corporations themselves or non-auditors