Advertisement
YOU ARE HERE: LAT HomeCollectionsFixme

New Accounting Rule on Tax Set-Aside to Affect Earnings

September 18, 1993|JUBE SHIVER Jr. | TIMES STAFF WRITER

WASHINGTON — As corporations tally their balance sheets this month, many are reeling from a new accounting rule that requires them to set aside reserves every time federal taxes rise. The change will cut most companies' third-quarter earnings below analysts' estimates.

The rule--issued early last year by the Financial Accounting Standards Board--in effect requires U.S. companies to establish a onetime reserve whenever corporate taxes go up. The Clinton Administration deficit-reduction package, which raises the top corporate tax rate to 35% from 34%, was passed by Congress last month, so companies must put aside the reserve in the third quarter.

"Most companies will feel some impact," said Janet Pegg, accounting analyst for Bear, Stearns & Co. in New York.

"From now on it's going to happen every time there's either an upward or downward adjustment in the tax rate," added Robert Willens, an accounting analyst for Lehman Bros. in New York.

Although prepared for the tax increase itself, many experts were unaware of the additional financial penalty of the accounting rule change.

Experts say the rule will have its biggest impact on capital-intensive companies with big write-offs from equipment depreciation and firms that executed takeovers of other companies in a manner that left them with deferred tax liabilities.

Advertisement
Los Angeles Times Articles
|
|
|