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Five Keys to Accounting. Doug Shackelford University of North Carolina. #1 The Accountants’ Joke. Q: What is 2+2? A: What do you want it to be? The joke is right, But not for the reason you think!. #2 Accountants and Empirical Researchers. Assume Observe Measure Estimate Judge

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five keys to accounting

Five Keys to Accounting

Doug Shackelford

University of North Carolina

1 the accountants joke
#1The Accountants’ Joke

Q: What is 2+2?

A: What do you want it to be?

The joke is right,

But not for the reason you think!

2 accountants and empirical researchers
#2Accountants and Empirical Researchers
  • Assume
  • Observe
  • Measure
  • Estimate
  • Judge
  • Record
  • Audit/Replicate/Challenge
3 accountants measure balance sheets
#3Accountants Measure Balance Sheets
  • Assets = Liabilities + Equity
  • Income is the Difference
  • Tax Starts with that Difference (Income) and makes adjustments
  • Tax Balance Sheets--the missing statements
balance sheets vs tax returns
Balance Sheets vs. Tax Returns
  • Source of Confusion
  • GAAP measures A, L, and E
  • Tax takes (unimportant) Changes to get Taxable Income
  • Example: Accounting for Income Taxes
    • GAAP trying to measure Deferred Tax ASSETS and LIABILITIES
    • Key reason book tax provision isn’t taxes paid
  • Why M-3 requires B/S Understanding
4 language matters

Expenses (Provision)


Retained Earnings

Book Value






Earnings and Profits (sort of)




#4Language Matters
5 why book tax conformity is a misguided idea
#5 Why Book-Tax Conformity Is a Misguided Idea
  • Demand for accounting: Reduce asymmetric information by constructing balance sheets in a reliable and relevant manner using judgment
  • Demand for tax: Collect revenue with as little judgment as possible
  • Conformity is a naïve notion based on a failure to appreciate the role of accounting