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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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