How would that reduce accounting scandals, wouldn’t it just substitute one set of rules for another?
The tax code has a discipline that GAAP lacks: the IRS aggressively enforces its rules through fines, civil and criminal liability. Some larger companies even have a full-time IRS auditor on site every day. GAAP lacks the teeth that the government has given the tax code. Also, having a single set of rules makes it harder to find loopholes. According to the Treasury Department, a principal characteristic of a tax shelter is the exploitation of inconsistencies between GAAP and tax accounting. I believe that the same is true for financial reporting scandals. Each of the companies you mentioned exploited the differences between tax and GAAP rules. Enron paid no income tax in four of the five years before it went bankrupt while at the same time racking up large GAAP profits and Refco’s tax accountants, Ernst & Young, refused to work on the company’s 2004 tax returns. Forcing public companies to use one and only one set of financial reporting rules reduces the potential for abuse and would r
