Unit 4 Essay

665 WordsSep 18, 20123 Pages
Unit 4 Discussion Board July 1, 2012 Publicly traded companies and other regulated companies provide financial information for investors. Investors concern is with financial principles as they are with the measure of eco-nomic activity and when such measurements are to be made. Our decision to get an education is an economic value that will be received in the future, hopefully. Income taxes affect the cash flow and as we know cash flow is vital for organizations to meet their obligations when due. Future taxes payable represents taxes to be paid in future years and deferred tax asset rep-resents refundable taxes in future years. Otherwise the differences are temporary and will zero out with the end result (Soffer & Soffer, 2003). The removal of deferred tax assets are done with a valuation allowance that must be recorded according to SFAS No. 109. Timing variations can make differences with collecting over more than one year between the asset tax basis and reported amount in financial statements (Financial Accounting Standards Board, 1992). Business combinations can also create differences, but all differences collectively are temporary differences. Firms can create valuation allowances against deferred tax assets by adopting SFAS 109 because they overestimate the valuation allowance for write off to increase income in future years. This is an opportunity to strategically manipulate future earnings. Banks is a good example because they have large deferred tax assets (Schrand & Wong, 2003). Which this makes me suspect the bailout from the government was a form of manipulation because the banks were able to pay the government back in a short time considering the extent of the losses. Positive evidence such as existing contracts or firm sales might support a valuation al-lowance is not needed along with more than needed of appreciated asset value over the

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