A Study on the Concept of Accounting Profit and Taxable Income, and the Policy for Their Coordination System

This paper first refers to the key concept of accounting profit and taxable income. Taxable income is recognized at the time of realization because it should be bearable under tax burden and can legally settle an interest in related parties. Accounting profit, defined as 'comprehensive income', is recognized and measured as the amount of periodic increase in net assets. This major difference was caused by the paradigm shift, such as the main purpose of financial reporting system was converted into the decision usefulness. This paper secondly clarifies the relationship between accounting profit and taxable income. Corporate tax law provides that taxable income is coordinated with annual closing profit based on GAAPs. Cumulative issuances of accounting standards for purpose of the global convergence brought difficulties in this coordination process. It might be more complicated when the IFRS is adapted to non-consolidated financial statements. Thirdly, this paper suggests the recent policy for this coordination. With regard to US enforcement of the IRS, Schedule M-3, reported on the factors of variances between profit and income in detail, has been required to attach corporate tax returns amended after the 'Enron' incident. Taxable income should be chained to GAAP profit in order to secure both proper accounting and tax purposes, and the coordination system would play an important role in our tax system after the IFRS adoption.

論説 (Article)