Analyst's View of Deferred Income Taxes.

Abstract The article discusses the attitudes of accountants suggesting that financial statements would be simpler for the financial analyst if accountants would aim their presentation toward the achievement of greatest clarity. The deferred tax balance reflects both taxes currently due but previously accrued and reported to stockholders, and accruals now reported but not currently payable. But the year to year change discloses only the net effect on the account, so, the analyst must refer to the income statement. The companies should state all accounts in order to permit a fuller reconciliation between the income statement and the balance sheet, so that the stockholder may understand what his company's statements are about. Accountants would do the security analyst a favor in developing fuller disclosure and greater clarity by providing him the idea of the company's tax returns and thus of the comparability of its earnings with those of other companies who report to stockholders on a tax-return basis. The article presents examples of the confusion of some companies reporting on a tax basis, some on a normalized basis with no indication of the deferrals, and some on a flow-through basis.