Predictive Ability of Accounting Standard IAS 12 in Agriculture

The predictive value of tax allocations (deferred taxes) and their incremental power in explaining future cash taxes paid and current tax expenses in the agricultural industry is a topic of significant relevance. This is particularly important for policyholders and managers due to the complexity of accounting standards in this area. The goal of the paper is to enhance the understanding of tax planning techniques used by agricultural companies. We consider four variables crucial in our analysis (dependent variable – cash taxes paid and current tax expense) and independent (deferred tax assets and deferred tax liabilities). Our modelling of the relationship reveals that current tax expense has a predictive power to explain variations in a cash outflow for income taxes, making it a relevant factor. Deferred tax assets explain the cash tax outflow, while regression demonstrates the power and relevance of deferred tax liabilities in predicting variations of current income tax expense in agricultural companies. <br />Implications for Central European audience: In Central Europe, the business environment and influence of the agricultural sector are similar to those in Serbia. Companies apply the same accounting standard for the recognition and evaluation of deferred taxes according to the IAS 12 standard. The results from this paper could be used by managers in all companies in this industry to apply adequate tax planning techniques to satisfy their tax goals and to minimise tax litigation risk.