Earnings Management Model by Using Deferred Tax Asset and Deferred Tax Liability Strategies

According to agency theory, the government and business enterprises have different interests in paying taxes. The motivation for using deferred tax asset and liability to identify earnings management is that there is usually more discretion in generally accepted accounting principles than in tax laws. Managers may have an incentive to increase income in the financial statements without increasing income in the tax report. A possible reason why managers do not want to increase taxable income is that this will lead to an increase in tax costs. Therefore, one of the things that probably affects the earnings management is deferred taxes.  The aim of the research is to investigated whether the deferred taxes resulting from the financial statements reported based on accounting standard 35 as a strategy for managers to achieve earnings management or not. To achieve the goal of the research, the data of 169 sample companies from the Tehran Stock Exchange, were collected using the systematic elimination approach and were analyzed using the method of descriptive-correlation analysis by performing logistic regression test. The findings showed that the deferred tax assets have an effect on earnings management, but deferred tax liabilities have no effect on earnings management. The obtained results indicate that managers use deferred tax assets to manipulate earnings.