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Auditor industry expertise and the predictive power of the deferred tax valuation allowance

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  • Zhuoli Axelton
  • Jeffrey Gramlich
  • M. Kathleen Harris

Abstract

This paper investigates whether auditor industry expertise influences the predictive value of management earnings forecasts embedded in the deferred tax asset valuation allowance (VA). VAs depend on management's forecast of future taxable earnings and can provide investors with information about expected changes in future earnings. We find that audit industry expertise improves the predictive power of the VA, but there is no evidence of a similar effect for tax‐specific industry expertise. These results are robust to entropy balancing and quasi‐experimental analyses around auditors becoming industry experts.

Suggested Citation

  • Zhuoli Axelton & Jeffrey Gramlich & M. Kathleen Harris, 2025. "Auditor industry expertise and the predictive power of the deferred tax valuation allowance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(1), pages 323-364, March.
    • Handle: RePEc:bla:acctfi:v:65:y:2025:i:1:p:323-364
    DOI: 10.1111/acfi.13330
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    References listed on IDEAS

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