The GAAP in tax education: integrating tax and financial accounting in the tax curriculum.

• Author: Nellen, Annette
• Position: Campus to Clients: Education for Today's Business Needs

Tax education has experienced several major shifts in the past two decades, driven by changes in the focus of tax practice. During the 1970s and 1980s, the emphasis in practice and in the classroom tended to be on compliance (i.e., teaching students to fill out tax forms properly and understand the nuances of the tax laws). Within corporate America, the tax function was treated as a cost center. The relation between the tax laws and financial accounting generally was mentioned only in passing, if at all. "Accounting for income taxes" was a topic left to instructors of intermediate or advanced accounting classes.

During the 1990s, tax practitioners at national and international CPA firms concentrated on selling tax planning strategies that affected their clients' financial statements, either through a reduction in the income tax provision or an increase in pretax income. In corporate America, the tax function was elevated to a profit center; the emphasis shifted to "enhancing shareholder value." This shift in emphasis created the need for a "new tax" curriculum, centered around taxes and business decisionmaking. The traditional rules-based tax textbook approach was challenged by texts that provided students with a conceptual approach to taxation, summarizing the general rules and their application to various decisions made by firms and individuals (e.g., savings, compensation, investment, mergers and international expansion). Tax decisionmaking classes became popular in masters of business administration (MBA) and accounting programs.

At about the same time, the AICPA established a committee of practitioners and academics to craft a Model Tax Curriculum (MTC) for undergraduate, masters and MBA programs. (The model tax syllabi related to this curriculum can be accessed via the AICPA website, www.aicpa.org.) Professors who have incorporated the MTC into their curriculums shared their experiences; see, e.g., Dennis-Escoffier, et al., Tax Education, "Experiences with the Model Tax Curriculum," TTA, May 2001, p. 340. In the preamble to the first undergraduate course, the task force stated that "it is extremely important that students be introduced to a broad range of tax concepts, particularly within a framework of financial accounting" (emphasis added).The recommended syllabus, however, does not include any reference to introducing the financial accounting rules that apply to income taxes. The model syllabi for the second undergraduate (first masters) tax class suggests spending two hours on "financial tax accounting concepts," defined as Statement of Financial Accounting Standard (FAS) No. 109, Accounting for Income Taxes, and GAAR.

Need for a New Approach

The much-publicized bankruptcies of Enron Corp. and WorldCom ushered in a new "expectation" in tax practice at both the advisory and firm levels, one that might be characterized as tax risk management. At Congressional hearings investigating the rise and fall of these public corporations, government investigative bodies (i.e., the Joint Committee on Taxation) and others (including this column's authors) pointed out that the rules on accounting for income taxes left room for managers to manage earnings through the tax provision without detailed disclosure. FAS No. 109, the primary source of the accounting rules related to recording income taxes, went from a little understood--and often overlooked--accounting pronouncement, to a "shadowy world."

As a result, the tax function mission of "enhancing shareholder value," while still important, must now be evaluated through a new filter imposed by Congress and the IRS--"transparency...