House Ways and Means Committee Chairman Dave Camp (R-MI), in a hearing advisory issued earlier this week, announced the committee will convene two hearings addressing the interaction of tax policy and U.S. Generally Accepted Accounting Principles (GAAP). The first hearing will take place on Tues. February 8.
According to the hearing advisory (full title: Camp Announces Hearing on the Interaction of Tax and Financial Accounting on Tax Reform),
The [first] hearing will focus on the interaction of tax policy and financial accounting rules (such as Generally Accepted Accounting Principles, or “GAAP”), and how this interaction affects how publicly-traded companies respond to tax policy. The second hearing will focus on the special challenges faced by small and closely-held businesses that are less concerned with GAAP but must confront tremendous complexity in dealing with tax accounting and related rules such as choice of entity. The [first] hearing will take place on Wednesday, February 8, 2012, in Room 1100 of the Longworth House Office Building, beginning at 9:00 A.M.
My two cents (I call your attention to the disclaimer which appears on the right side of this blog): I have pretty much been in the procyclical camp, e.g., in viewing the potential impact of the evolution of fair value accounting standards (sometimes loosely referred to as 'mark-to-market') leading up to and during the credit crisis. Said more generally, I have been of the view that GAAP has real economic consequences, and sometimes unintentionally so (I say 'unintentionally' because GAAP is supposed to be, in theory, as mandated by FASB's Conceptual Framework, 'neutral').
But the reality is GAAP does not always drive 'neutral' behavior. Thus I am intrigued by the following statement in the House Ways and Means Committee's hearing advisory notice, which appears to recognize that accounting rules can drive certain behaviors that have economic impact (when viewed in isolation, or as may impact tax revenue derived from GAAP):
As the Committee evaluates tax reform options intended both to make the United States a more attractive place to locate activity and to simplify tax compliance for business taxpayers, it is important to understand how financial accounting rules influence behavior. Tax policy does not exist in isolation, and the Committee needs to understand the interaction between tax policy and accounting rules so that we make informed decisions about which policy choices will help employers grow and create jobs.”
FOCUS OF THE HEARING:
The hearing will consider how public companies evaluate tax policy options in light of financial accounting considerations. It will examine whether tax legislation works as intended when Congress fails to account for the effects of financial accounting on corporate behavior.
NOTE: I am not saying I am in agreement with any particular tax policy or tax reform, and am not opining on any particular accounting standard; I am just intrigued by the language noted above as relates to potential behavioral actions, and economic consequences, flowing from GAAP.
This topic of economic consequences of financial reporting has arisen perenially in this blog (e.g., here, here, here, here and here), and is also a subject of considerable interest from time to time in Prof. Dave Albrecht's blog, The Summa (e.g. here.)