Company’s don’t pay taxes based on accrued income that is what the M-1 and M-2 schedules are for on the 1120. Taxes are paid after cash is received.
The problem is that auditors are not asking if the method of recognizing income makes since, or the auditors don’t have the basic algebra skills to known if the method makes any since. I was a accounting major that passed the CPA exam my first sitting after I graduated, and I can make a case for both. In college, I was amazed at how many accounting majors lacked the algebra skills to actually calculate a cost function, or or anything else for that matter. Those students relied on writing assignments and group work to pass their accounting classes. Who cares if an accountant is a great writer? The going concern statement is copied word for word every time, oh I mean it would be, if the auditors could ever figure out that a company is a going concern.
After I graduated, I didn’t get a better feel for the accounting profession. When I was prepping for the CPA exam, my instructor told me how she was auditing some work for an SEC filing, and the tests described in the prior year’s work were impossible to do. (The prior jr auditor just BSed the notes) She told her boss who said I don’t care, just give him something to throw into the audit. Enron and the fall of Author Anderson happened the year after that. Auditors make partner by attract and retaining clients. If you give unfavorable audits, you do not retain clients.
Needless to say, I quit the accounting profession. I am now a programmer that makes software for douchebags, I mean mortgage firms. What can I say, I have bills to pay, and nobody cares if a programmer’s grammar is less than perfect.
