ABSTRACT
This chapter analyzes similarities and differences between financial and tax accounting with a view toward understanding how financial accounting might inform and improve tax accounting and vice versa. Depreciation is a good example of the divergence between financial and tax accounting that arises by reason of the multiple objectives of the tax system. Furthermore, tax depreciation is more accelerated than is warranted under pure economic depreciation in order to stimulate investment. Financial reporting, with its primary focus on accurate information, probably aligns more closely with the measure of economic income than tax reporting, which not only seeks to measure economic income but also must take into account revenue needs, ease of administration, and tax expenditures. Self-created intellectual capital comprises a much greater proportion of the total stock of intellectual capital than acquired intellectual capital. National accounting is another area that has made significant advances in the measurement of intellectual capital.
