Tax Misreporting and Audit Adjustment

The purpose of this study is to examine the extent of tax misreporting committed by firms in Malaysia. Tax misreporting is measured by independent variables namely firm size, types of tax agent, types of ownership and types of business sectors. The study takes the approach of using actual data sample from 555 corporate tax audit cases that has been audited and finalised in the year of 2009 by the Inland Revenue Board of Malaysia (IRBM). The level of tax misreporting is primarily measured by the IRBM's audit adjustments. Using t-test and ANOVA, the study indicates size of firms, types of tax agents, form of ownerships and types of business sectors have signifcant difference to audit adjustments. The study recommends that the IRBM could utilize firm's characteristics in selecting tax audit cases in future; change and revamp tax audit approach because tax evasion possibly could be hardly detected by tax authority in future. The study provides useful feedback to the government as a policymaker to revamp and improve current approach on tax audit; reinforce and design effective tax administration systems in order to curb tax evasion which results an increase in government's revenue and any loopholes to the tax administration can be improvised as tax evasion cannot be compromised in Malaysia