Assume that you are CEO of a company. Your company has reported a loss for the current year. Since it cannot carry back the entire loss to recoup taxes paid in prior years, it records a loss carryforward as a deferred tax asset. Your expectation is that future profitability will be sufficient to realize the tax benefits of the carryforward. Your chief financial officer approaches you with an idea to create a deferred tax valuation allowance that will reduce the deferred tax asset, increase tax expense for the year, and increase your reported loss. He reasons that the company's stock price will not be reduced markedly by the additional reported loss since a loss year has already been factored into the current price. Further, this deferred tax valuation allowance will create a reserve that can be used in future years to increase profit (via reversal of the allowance) if needed to meet analyst expectations.

a. What stakeholders are potentially affected by the CFO's proposal?

b. How do you respond to the proposal? Justify your response.