Emphasis on the Balance Sheet
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What is meant by an emphasis on the balance sheet can best be described by re-examining our tax accrual formula and characterizing each part as A, B and C. |
Up until SFAS 96 and 109, the process of completing a tax accrual was done by computing the tax provision (A); then computing the tax liability (B); and the difference between the two, became deferred taxes (C). As you recall, the computation of parts A and B began with pre-tax book income and this was considered to be an income statement emphasis.
With the emphasis changing to the Balance Sheet, the FASB wanted the provision for taxes (part A) to be the sum of parts B and C (the two balance sheet accounts). At first blush, a neophyte accountant (or even a seasoned math major) might wonder whether a difference could possibly exist. The answer to this question is simply not always—and in fact for many small companies, the difference seldom exists. When circumstances dictate that a difference does exist, the complexity of the calculation is exponentially confusing. Therefore, the remainder of this lesson focuses on the complexity of the computation that has been created through SFAS 109.
