“It’s time for the government to stop enabling accounting fraud. The Internal Revenue Service and the SEC let companies keep two sets of books, one for tax reporting and the other for financial reporting. There should be no difference in the figures corporations report to the IRS and the SEC. The combined surveillance and enforcement by these agencies of one set of books and identical tax and financial reports should give the investing public a clearer picture of corporate performance.” Letter to the Editor, BusinessWeek, August 12, 2002.

Required:

1. Why do companies keep two sets of accounting books, one for tax reporting and the other for shareholder financial reports?

2. Why might it not be a good idea to force companies to issue the same financial statements for both IRS and SEC purposes?