19-2 Deferred taxes2

19-2 Deferred taxes2 - Deferred Taxes: System Confuses...

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Deferred Taxes: System Confuses Execs, Investors, CPAs Source: Nikkei Report, 7 January 2003 Corporate income for accounting purposes is deter- mined under generally accepted principles set by the accounting profession, but income for tax purposes is computed according to the rules of the tax authority. The concept of deferred-tax accounting has been in- troduced to reconcile income differences in these two sets of rules, but it often plays tricks with financial statements, boosting corporate profit significantly in one situation and depressing it in another. The result- ing uncertainties are bewildering investors as well as corporate managers and even accountants. "We cannot sign the auditing certificate unless you eliminate the deferred tax assets on your balance sheet, as it has become clear that deteriorating earn- ings prospects have made it unlikely for them to be realized," warned the accountants auditing Japan Ra- dio Co. during the September 2002 midterm book closing. The company had expected to record a group net profit for the first time in five years, but toughen- ing price competition faced by its mainline radio communications equipment weakened revenues.
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19-2 Deferred taxes2 - Deferred Taxes: System Confuses...

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