Financial and Tax Accounting: Transparency and 'Truth'

TAX AND CORPORATE GOVERNANCE, Schön, ed., Springer Science, 2008

Oxford Legal Studies Research Paper No. 2/2008

34 Pages Posted: 21 Jan 2008

See all articles by Judith Freedman

Judith Freedman

University of Oxford - Faculty of Law; Oxford University Centre for Business Taxation

Abstract

In the USA there have been calls for greater conformity between the rules producing tax accounts and those used for financial reporting purposes. A number of benefits are claimed for this so-called 'book-tax conformity', including reduced compliance costs and better opportunities for monitoring. In Europe, the debate around use of the financial accounts for tax purposes has arisen from a different conceptual starting point as well as differences in surrounding circumstances. Linkage between tax and financial accounts is common in Europe, although it takes varying forms. This does not result in complete book-tax conformity, however, and recent developments in accounting may be increasing divergence rather than reducing it. Despite the strong arguments in favour of conformity, there are also good reasons for some divergences, meaning that the most likely outcome in any system, whatever the starting point, is partial convergence. The problem with a hybrid outcome of this kind is that, at the point of divergence, there can be conceptual confusion and difficulties in integrating and managing two conceptually very different rule systems. Clarity of the relationship between the rules and improved accounting disclosure requirements might be more important than convergence, and might be achieved with less distortion to either tax or financial accounting. The current UK position is used to illustrate these points.

JEL Classification: M41, H25, M44, M45, M47

Suggested Citation

Freedman, Judith, Financial and Tax Accounting: Transparency and 'Truth'. TAX AND CORPORATE GOVERNANCE, Schön, ed., Springer Science, 2008 ; Oxford Legal Studies Research Paper No. 2/2008. Available at SSRN: https://ssrn.com/abstract=1085862

Judith Freedman (Contact Author)

University of Oxford - Faculty of Law ( email )

Worcester College
Walton Street
Oxford, Oxfordshire OX1 2HB
Great Britain

Oxford University Centre for Business Taxation ( email )

Worcester College
Oxford, Oxfordshire OX1 2HB
United Kingdom

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