Improving Business Statistics Through Interagency Data Sharing Summary of a Workshop (2006) / Chapter Skim
Currently Skimming:
8 Using Tax Return Data to Improve Estimates of Corporate Profits--George A. Plesko
8 Using Tax Return Data to Improve Estimates of Corporate Profits--George A. Plesko
Pages 133-144
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 133... ...
, provides a measure of income to the users of financial statement information. The users, under the concepts of financial accounting for publicly traded corporations, are investors, creditors, and any other party needing information to make a decision about whether or not to engage in a business relationship with a firm, but not necessarily able to compel the firm to provide the information.
|
From page 134... ...
Since the target audience of financial statements is investors and others who need information to make decisions about a company, including whether to invest in the company's equity or debt, companies that issue publicly traded equity or debt securities are required by the Securities and Exchange Commission to file audited financial statements. Such statements must follow generally accepted accounting principles (GAAP)
|
From page 135... ...
Both temporary and permanent differences are reported in corporations' financial statements. Under FASB's Statement of Financial Accounting Standards Number 109, corporations report a total amount of tax liability based on current-year financial reporting income, delineating the portion currently owed to the government from that which is deferred due to differences in income and expense recognition between the two methods.
|
From page 136... ...
, require firms to reconcile their book measure of tax liability to their actual liability. Furthermore, income tax reporting requires firms to reconcile their taxable income to their book income on Form 1120.
|
From page 137... ...
(2005) , shows that book income has differed from taxable income both in scale and in annual changes.
|
From page 138... ...
In 1992, a financial accounting change required firms to begin recognition of expenses to pay postretirement benefits, leading to large reductions in reported book income for that year. The negative difference in 2001 is driven by firms with large negative tax net income that have smaller, or positive, book income.
|
From page 139... ...
SOI Tabulations Available Begin year 0 End year 0 End year 1 End year 2 Earnings Releases 10-K filed (March 30) FIGURE 8-3 Timeline of financial and tax reporting.
|
From page 140... ...
If corporate financial reporting can be used to infer tax attributes, it may be possible to effectively model and estimate taxable income two or more years ahead of having tax return data. Quarterly tax liability patterns are potentially inferable via estimated tax payments; the financial statements, in theory, provide sufficient disclosure of tax items to estimate the taxable income of the firm.
|
From page 141... ...
First, in forecasting corporate profits, the additional data provided by the M-3 will offer greater insight into the relation between taxable income and the book profits reported in financial statements. This greater detail should allow for a better use of book income and other information in financial statements to estimate the pattern that taxable income will follow.
|
From page 142... ...
Financial Accounting Standards Board 1992 Accounting for Income Taxes. FASB Statement No.
|
From page 143... ...
Proceedings of the Ninety-second Annual Conference on Taxation 1999:367-371. 2002 Reconciling corporation book and tax net income, tax years 1996-1998.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.