Exploring the impact of tax divergence in financial reporting. A case of Albania (2022)

The interplay between tax divergence and financial reporting in Albania has assumed growing importance. This research, grounded in a post-positivist paradigm, seeks to elucidate the connection between these variables and discern which exerts the greater influence. The methodology is a qualitative dimension involved in the analysis of secondary data from businesses and the examination of tax laws and accounting standards. We elaborate the topic by taking on the one hand the main items of Accounting Standards and on the other hand the main items of the tax legislation in force. Furthermore, the research incorporates a quantitative component using a questionnaire to collect perceptions from professionals. This adds a descriptive or cross-sectional element to the research, but the primary emphasis remains on exploration and understanding, making it predominantly an exploratory research type, employing an ex-post-facto methodology. The study reveals that in the Albanian context, tax regulations wield a substantial impact on the practices of financial reporting. Variations in tax laws often prompt the application of creative accounting techniques, leading to information imbalances that can have ramifications for decision-making. Notable instances have illuminated how tax divergence can yield discrepancies in financial reporting, compelling the necessity for regulatory adaptations and elevated reporting standards. From this research, several pivotal recommendations have emerged. These emphasize the synchronization of legal and accounting frameworks through the reduction of permissible accounting and tax methods. This strategic alignment aims to enhance comparability while minimizing opportunities for divergence. Management is encouraged to acknowledge the significance of effective tax planning, institute a robustly supervised Code of Ethics, and actively endorse its observance. Tax authorities are urged to invest in expanded training, with an urgent imperative for streamlining tax legislation. This paper offers valuable insights for stakeholders such as investors, management, policymakers, regulators, to enhance financial transparency, benefit and compliance by addressing the impact of tax divergence on financial reporting in Albania.