Effects Of Deferred Taxation As A Tool On Earning Management

Deferred taxation has effect on earnings of the companies.In this research,I examine the effects of deferred taxation in its both asset and liabilities form,and try to understand the behavior of management about the usage of deferred taxation in managing earning.Here,Auto Mobile Manufacturing Sector is chosen,and regression analysis is applied on individual companies and on whole sector as well,on their ten years data from the year of 2008 to 2017.Regression analysis is implemented on the variables,change in deferred taxation asset and change in deferred tax liabilities,with respect of change in sales amount to nullify the effect of other factors,to see their effect on the change of earnings with respect to change in sales.The result of the research is that,deferred taxation(liability)affects the earnings inversely and deferred tax asset have direct effect of earnings,means it have impact on the earnings of company.For the whole sector the model is significant,but in some individual companies'results are in-significant,as it is not the main factor which control the earnings,because many other factors also affect the company's profitability,it may be proof as a tool of earning management.So,stakeholders as well as auditors should consider the fact of that earning may be managed by the usage of deferred taxation.