In a recent meeting of the Board of Directors of Singh Semiconductors, the Board was discussing deferred taxes and the effective tax rate reconciliation disclosures. The Board wanted to learn more about this topic because low effective tax rates relative to the effective tax rates of comparable companies are a potential red flag. At the meeting the following two statements were made by Board members: Statement 1: When analyzing a firm’ s effective tax rate reconciliation disclosures, analysts watch out for companies that report high income tax expense on their financial statements compared to taxes payable because such companies are more likely to be using aggressive accounting methods and have low-quality earnings. Statement 2: High effective tax rates may result when a firm has significant restructuring charges since restructuring charges do not generally have tax cash flow effects in the year they are recorded, but can have significant effects on future cash flows. Are Statements 1 and 2 as made by Singh Semiconductor’s Board members correct or incorrect Statement 1 Statement 2 ①A. Correct Correct ②B. Incorrect Correct ③C. Incorrect Incorrect
A．
| A. ① |
B．
| B. ② |
C．
| C. ③ |
参考答案：A
解析：The most useful measure of the effective tax rate for an analyst is: taxe payable from the tax return ----------------------------------------------- pretax income from the income statement When taxes payable are significantly less than income tax expense, firms will report a low effective tax rate by this measure relative to comparable companies. One possible explanation is that the company is manipulating earnings and showing higher earnings on their income statements than on their tax returns. Aggressive revenue recognition, long estimates of asset lives, high estimates of asset salvage values, and aggressive capitalization of expenses could all contribute to this and indicate that earnings are of "poor quality". Significant restructuring charges typically reduce pre tax income but not taxes payable, leading to relatively high effective tax rates using the above measure. Asset value write-downs, which are frequently a large component of restructuring charges, will typically not reduce cash taxes. Cash taxes in the future, however, may be reduced when "restructured" assets are disposed of and losses realized