A New Look at Accounting for Operating Loss Carryforwards.

Abstract The article demonstrates the lack of consonance between generally accepted accounting methods and the conservative stance expressly avowed in Accounting Principles Board Opinion 11. It makes recommendations for changes in present "generally accepted" methods and presents the theoretical basis for such changes. The problems discussed will involve not only loss carry forwards, but also important related questions concerning the reporting of tax effects of timing differences, prior period adjustments, and the nature of deferred tax charges and credits. Tax laws rarely prescribe financial reporting methods and, therefore, the use of an acceptable financial reporting method rarely circumscribes the freedom a company has to select among alternatives available for tax reporting. Since the motivation for selecting financial reporting methods has to do with the projection of a financial image whereas for tax purposes management's primary concern is to defer payment of taxes as long as possible, the existence of timing differences is a normal circumstance for almost all corporations.