Most companies keep separate sets of accounting records for ﬁnancial reporting and for income tax computations. Which of the following statements is true?
A) They do it even though this practice is illegal and in violation of international ﬁnancial reporting standards.
B) They do it because the Income Tax Act requires companies to keep separate records for tax purposes.
C) They do it because ﬁnancial reporting rules and income tax regulations differ in many ways.
D) They do it to enable a company to do a reconciliation between taxable income and reported proﬁt.

Question

Quizplus · Accepted Answer

DC) Financial reporting rules and income tax regulations often have different objectives and requirements, leading to differences in how transactions are recorded and reported. For example, financial reporting aims to provide a fair view of the financial position and performance of a company to its stakeholders, while tax regulations are concerned with calculating the correct amount of tax payable to the government.D) Keeping separate sets of records allows companies to reconcile taxable income with reported profit. This reconciliation is necessary because the differences in accounting for certain transactions under financial reporting standards and tax regulations can lead to different profit figures. The reconciliation helps in explaining these differences to stakeholders and tax authorities.

Most Companies Keep Separate Sets of Accounting Records for ﬁNancial