Acme Incorporated Accounting Practises free essay sample

This paper is an analysis of Acme Incorporated accounting practices on deferred income taxes and the discrepancies between tax and book depreciation methods found by the Certified Public Accountant (CPA), Stephanie Delaney, the new director of corporate taxation. We will write a custom essay sample on Acme Incorporated Accounting Practises or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page As a result of such discrepancies, Acme realizes large deferred tax liability, thus reducing the income taxes paid. In addition, Ms. Delaney found out about the policy of selling plant assets before they would reverse in the deferred tax liability account. This policy complemented with the rapid expansion of the plant asset base allowed a continuous defer of income taxes payable for many years. Despite finding the policies legal, Ms. Delaney doubted their ethics. The analysis discusses about the Acme’s reasons of selling plant assets before the deferred tax liability is reversed, its ethical implications, who might get harmed by such policies and what are Ms. Delaney’s responsibilities as a CPA and director of corporate taxation. As stated above, Acme has the policy of selling plant assets before the temporary differences reverse, thus avoiding deferred tax payments. When the temporary differences reverse, taxable income would be higher than financial accounting income. Acme would start paying taxes it deferred from the previous years, in case the tax depreciation exceeds book depreciation. To avoid it, Acme sells the plant assets. This policy coupled with the rapid expansion of the asset base suggests that the company is deferring tax liabilities when they sell the existing assets, by requiring new ones. Acme’s method of restructuring their assets, results in 100 % deferral of the tax liabilities. Furthermore, selling-off assets before the temporary difference reverses, enables Acme to minimize the taxes paid by using a legal strategy plan. The Federal Government provides such incentives to the businesses, so making use of deferring tax payable incentive, does not bring any legal or ethical issue. On the other hand, there is a concern that Acme is not paying its â€Å"fair share† of taxes, thus gaining on the expense of the Federal government. In addition, Federal Government would be harmed by Acme’s practice of deferring income tax payable, because it receives fewer taxes that otherwise they would receive if Acme would not practice the same policy. Furthermore, in case the replacement assets are more expensive to acquire, the cash flow is decreased, negatively affecting short-term investors and creditors benefits. Situations ethicality is one major problem that a CPA faces. Being a CPA requires to advocate objectivity and integrity of financial reporting. Since, Ms. Delaney is uncomfortable with the ethics of Acme’s accounting practices, than she should communicate her discomfort and concern to the Acme’s managers and also to the Audit Committee and probably to the Board of Directors. The selling of the plant assets before the temporary differences reversed in the deferred tax liability account is considered as a profitable and ethical policy by Acme Incorporated but it is not considered ethical by Ms. Delaney. Such policy benefits the corporation due to the huge decrease in the deferred tax payable. Before talking actions, the CPA has to be clarified upon the reasons of adopting such policies, which is why Ms. Delaney should talk with managers.