Case 1: Reporting Standards vs. Tax Standards

The Anglo-American countries tend to have substantial differences between their reporting

standards and their tax standards. Yet, little has been done to reconcile these differences because

tax law and reporting law have different objectives. However, having two sets of rules requires

that companies keep two sets of books, which is both time-consuming and costly.

Cardon Company, located in the United States, is frustrated with the costs of maintaining two

sets of books. After some research, top management noticed that some other countries, such as

Japan and Germany, have tax law and reporting standards that closely correlate with each other.

Cardon Company does not understand why the United States does not try to adopt a similar

system. Does the company have a valid argument? In discussing this question, consider the

following questions:

Questions

1. What are the advantages of converging the two systems?

2. What are the disadvantages?

3. What difficulties are likely to arise if such a shift were to take place?

4. Should the Anglo-American countries adopt a similar system?

Case 2: EU Conversion

Spain's accounting system has historically been heavily tax-oriented. With the EU's adoption of

IFRS, however, it will be required to have a reporting system substantially different from its tax

system.

La Rodonda Company is trying to anticipate some of the problems it might face with the

conversion to IFRS.

Questions

1. How might its goals of accounting change with the adoption of IFRS?

2. What should it do to aid the transition?

3. What problems is it likely to encounter and how can it mitigate them?