Carry forward of tax losses aside, the result of applying tax effect accounting is to decrease the volatility in net profit that would be experienced because of the effect of timing differences on the amount of income tax expense recognized. Suggest that the motivation for managers in adopting tax effect accounting is to minimize this volatility. If this is correct, it explains why listed companies embraced tax effect accounting although there was no compulsion to do so until 31 December 1989. Ryan et al. reported that for reporting periods 1976-77, 1977-78 and 1978-75, more than 80 percent of the top 250 Australian companies used tax effect accounting, (J.B.Ryan, C.T.Heazlewood, and B.H.Andrew, Australian company financial reporting 1980, accounting research study NO 9, Australian accounting research foundation, 1980, p 45) and Oran reports that is was used by 91 percent of companies in 1987, rising to 96 percent in 1989( J. Oran, "AASB 1020:accounting for income tax: tax effect accounting", in J.B.Yuan, B.H.Andrew, Australian company financial reporting 1990, accounting research study NO 11, Australian accounting research foundation, 1991, p.216. the 1990 survey was of the top 150 companies rather than the top 250). The central question is whether we have assets and liabilities, and if we do, is the recognition criteria of SAC 4 satisfied? In the case of liabilities, we believe that there is no present obligation; accordingly, the definition of a liability is not satisfied. For assets, do we have future economic benefits that are controlled by the entity? .
While severability is not an essential characteristic of an asset, the absence of an ability to transfer control of the benefits must raise the question of whether control exists. We can, presumably, exercise control by denying others access to those benefits, but this assumes that other would wish to control them tax losses aside, a doubtful proposition.
