Comprehensive Tax Allocation
by CLAYTON L. BULLOCK Partner, Executive Office
Presented before The Accounting Conference of the Electric Utilities of Texas, Amarillo—July 1968
IN THE PAST FEW YEARS there has been a gradual, but accelerating, development of accounting principles relating to deferred taxes. The Accounting Principles Board of the American Institute of Certified Public
Accountants and its predecessor Committee on Accounting Procedure have been studying the problems and issuing pronouncements for a number of years. The culmination, of course, is Opinion No. 11 of the Accounting Principles Board, which adopted the principles of comprehensive
Development of accounting principles has been necessary as the use of taxation as an instrument of economic policy has increased. Liberalized capital recovery allowances have been added one after another—including liberalized depreciation, guidelines depreciation, and the investment credit —as have numerous other special tax provisions affecting other aspects of taxation.
DEVELOPMENT OF TAX EFFECT ACCOUNTING
In 1944, the Committee on Accounting Procedure recommended deferred tax accounting in certain circumstances (including amortization of emergency facilities for tax purposes), but not for differences recurring regularly over a comparatively long period of time. In 1958, the Committee
issued the controversial ARB 44 (Revised), dealing with liberalized
depreciation—its first release requiring tax allocation for a recurring difference. In 1962 the Accounting Principles Board adopted a substantially
similar position with respect to guidelines depreciation. Finally, after Accounting Research Study No. 9 in 1966, the Board took up the discussions leading to the issuance in December 1967 of Opinion No. 11. In the meantime, Opinion No. 2 had required deferral accounting for the investment credit and then Opinion No. 4 had accepted, as an alternative, application of the investment credit as a reduction of current income taxes.
An exception for regulated industries, applying particularly to public utility companies, was stated in the well-known paragraph 8 of ARB 44