The Effect of Accounting Conservatism on Relationship between Earning Management and Tax Aggressive Reporting

Conservative accounting, manipulation of accruals and aggressive financial reporting are among policies which can be employed as tax incentives by the companies. Evidence suggest that the conservativeness is the common and accepted tool for decreasing the tax on income in the companies. The recent research have shown that some companies tend to take part in aggressive reporting by using conservative accounting and influence their taxable income this way. Hence the purpose of this study is to investigate the impact of conservative accounting on the relation between earning management and aggressive financial reporting in the Tehran stock exchange. The hypotheses test was performed by multiple regression and with extended generalized least squares (EGLS) method with syncretic data layout for the time period between 2006 to 2013 using the information of 195 companies. The findings show that according the tax saving hypothesis, the managers use accruals for decreasing and delaying the tax. Also conservative accounting leads to lowering the tax and delaying it through control and identifying of less income. The profitable companies have motivations to postpone their recognition of incomes in order to decrease the present value of their taxes.