Question
Private firms are less likely to use public financial statements to contract with owners and lenders. Still, they are more likely to use the financial
Private firms are less likely to use public financial statements to contract with owners and lenders. Still, they are more likely to use the financial reporting process for tax, dividend, and other policy issues. Due to cost considerations, private firms are less likely to produce two separate sets of accounts for financial and tax purposes, even if they do not operate in a codified legal environment with high book-tax conformity. On this basis, we would expect to observe relatively fewer write-offs in private firms, but firms still write off relatively often. That write-offs have a financial statement impact comparable to that reported publicly.
This suggests that private firms' motives for writing off assets other than reporting financial performance are important. Existing research shows that one such motive for the financial reporting process other than reporting firm performance is to minimize the present value (PV) of corporate tax.
Question:
Explain why you will agree or disagree with this statement?
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