CURRENT ISSUES IN FINANCIAL REPORTING Essay Example | Topics and Well Written Essays - 1500 words - 3

CURRENT ISSUES IN FINANCIAL REPORTING - Essay Example Such statements, however, have inaccuracies due to increased off-balance sheet activities devised by firms to escape legal bondages. In this case, the aspect of OBS transactions and their relative representation of economic substance in a business setup is explored. This refers to the structures put in place by corporate to reflect their economic reality for the purpose of facilitating various transactions including tax optimization. In the United States, the doctrine of economic substance is used to direct tax policies, with focus on reducing tax burdens on the given firm. Through this doctrinal setup, the validity and intentions of various organizational structures relative to tax-policy compliance are determined. It provides precise procedures used in computation of taxable income, and other deductions payable by a given entity (Jacobson, 2009; 3). Through court processes, various amendments have been made on the standard economic substance doctrine. Such amendments have been aimed at curbing unethical practices which may be motivated by financial gains. Through legislative reforms, it is widely acceptable that courts can deny firms or individuals from enjoying specified tax benefits if such transactions are ill-intentioned. By all indicatio ns, however, the application of this doctrine has been marred with several instances of inconsistencies, with courts challenged with determination of the liquidity of various entities. Such challenges in ascertaining accurate financial positions of firms have been compounded by the increasing adoption of OBS transactions, a prospect that has rendered financial statements of many firms inaccurate and unreliable in predicting financial position of the firms. One of the common ways through which firms promote off-balance sheet transactions is through sales of receivables (Molina and Preve, 2009: 653). Basically, accounts receivable are representative of sales that are yet to be collected.