Five keys to accounting

Five Keys to Accounting Doug Shackelford University of North Carolina... The joke is right, But not for the reason you think!... Accountants Measure Balance Sheets  Assets = Liabiliti

Five Keys to Accounting

Doug Shackelford University of North Carolina

The Accountants’ Joke

Q: What is 2+2?

A: What do you want it to be? The joke is right,

But not for the reason you think!

Accountants and Empirical Researchers

 Assume

 Observe

 Measure

 Estimate

 Judge

 Record

 Audit/Replicate/Challenge

Accountants Measure Balance Sheets

 Assets = Liabilities + Equity

 Income is the Difference

 Tax Starts with that Difference (Income) and makes adjustments

 Tax Balance Sheets the missing

statements

Balance Sheets vs Tax Returns

 Source of Confusion

 GAAP measures A, L, and E

 Tax takes (unimportant) Changes to get Taxable Income

 Example: Accounting for Income Taxes

 GAAP trying to measure Deferred Tax ASSETS and LIABILITIES

 Key reason book tax provision isn’t taxes paid

 Why M-3 requires B/S Understanding

Language Matters

Book

 Expenses (Provision)

 Earnings

 Retained Earnings

 Book Value

 Goodwill

 LIFO

Tax

 Deductions

 Income

 Earnings and Profits (sort of)

 Basis

 Goodwill

 LIFO

#5 Why Book-Tax Conformity Is a

Misguided Idea

 Demand for accounting: Reduce

asymmetric information by constructing balance sheets in a reliable and relevant manner using judgment

 Demand for tax: Collect revenue with as

little judgment as possible

 Conformity is a nạve notion based on

a failure to appreciate the role of

accounting