Westpac Pacific Foods - Page 19




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          C.   Disparity Between Financial and Tax Accounting                         
               In this case, the proper method of accounting for the                  
          advance trade discounts for financial accounting purposes does              
          not coincide with the proper tax accounting treatment of such               
          items.  Such divergence, however, is not unprecedented.  See                
          Frank Lyon Co. v. United States, 435 U.S. 561, 577 (1978) (“we              
          are mindful that the characterization of a transaction for                  
          financial accounting purposes, on the one hand, and for tax                 
          purposes, on the other, need not necessarily be the same”).  As             
          explained in Thor Power Tool Co. v. Commissioner, 439 U.S. 522,             
          542-543 (1979), financial accounting and tax accounting serve               
          distinct objectives:                                                        
               The primary goal of financial accounting is to provide                 
               useful information to management, shareholders,                        
               creditors, and others properly interested; the major                   
               responsibility of the accountant is to protect these                   
               parties from being misled.  The primary goal of the                    
               income tax system, in contrast, is the equitable                       
               collection of revenue; the major responsibility of the                 
               Internal Revenue Service is to protect the public fisc.                
               Consistent with its goals and responsibilities,                        
               financial accounting has as its foundation the                         
               principle of conservatism, with its corollary that                     
               “possible errors in measurement [should] be in the                     
               direction of understatement rather than overstatement                  
               of net income and net assets.”  * * *  In view of the                  
               Treasury's markedly different goals and                                
               responsibilities, understatement of income is not                      
               destined to be its guiding light.  Given this                          
               diversity, even contrariety, of objectives, any                        
               presumptive equivalency between tax and financial                      
               accounting would be unacceptable.  [Fn. refs. omitted.]                
          Thus, sound justification exists for the disparate treatment of             
          Westpac's contingent obligation to return the advance trade                 





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