Five keys to accounting
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Five Keys to
Accounting
Doug Shackelford
University of North Carolina
#1
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!
#2
Accountants and Empirical Researchers
Assume
Observe
Measure
Estimate
Judge
Record
Audit/Replicate/Challenge
#3
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
#4
Language Matters
Book
Tax
Expenses (Provision)
Earnings
Retained Earnings
Book Value
Goodwill
LIFO
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 naïve notion based on
a failure to appreciate the role of
accounting
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