Identifying and Prioritizing the Financial Ratios Affecting Taxable Income

Identifying high-risk tax returns and locating them in the sample to be audited is of a great significance in any taxation system. In a “Risk- Based Audit Selection” system (RAS), one of the most important criteria of identifying high-risk tax returns is that of financial ratios affecting taxable income. The present research has aimed at identifying andprioritizing ratios involved in determining whether or not a given tax return is assumed to be a high-risk one. Through a questionnaire-based survey study including the analysis of the gathered data on the basis of an AHP technique, it has been concluded that such financial ratios as “net income”, “earnings per share” (EPS), “stock return”, and “workingcapital return’ which are normally calculated on the basis of the firms’ income, do influence on the taxable income and as such, are of great importance in deciding on risk degrees of tax returns.