Which of the following statements best describes considerations regarding a company's tax expense that may be made by users of GAAP financial statements?
A)The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies.
B)An analysis of earnings before interest, taxes, depreciation, and amortization (EBITDA) is often a better approach to comparing operating results of two companies.
C)One-time effects within a company's effective tax rate should be removed before comparing effective tax rates across companies (or across years for the same company).
D)All the above observations are correct.

Question

Quizplus · Accepted Answer

A) The breakdown of tax expense between current and deferred may provide useful information regarding the comparison of tax burdens between companies. This statement is correct as it allows users to compare the tax expenses between companies based on their current tax rates and deferred tax obligations.

B) An analysis of earnings before interest, taxes, depreciation, and amortization (EBITDA) is often a better approach to comparing operating results of two companies. This statement is not related to considerations regarding a company's tax expense.

C) One-time effects within a company's effective tax rate should be removed before comparing effective tax rates across companies (or across years for the same company). This statement is also correct as one-time effects can distort effective tax rates, making it difficult to compare them across companies or time periods.

Therefore, all of the above observations are correct.

Which of the Following Statements Best Describes Considerations Regarding a Company's