Question

What controversy relates to the accounting for net operating loss carryforwards?

Short answer

Accounting involves reporting each business activity to its relevant accountso that the organization can manage its funds effectively.It is thefirst function of the accounting department.

Step-by-step solution

Loss carryforwards

There is a lot of debate and discussion about the use of loss carryforward in the ordinary business operations used by the firms. Some of them are listed below.

Here are some of the controversies that relates to the accounting for net operating loss carryforwards

(1) The first controversy faced by the organization is that the amount of future deductible that arises from the carryforward loss is always different from the actual deductible amount in the future. Since the tax rates, operations, activities, deals, etc., keep on changing, it seems challenging to predetermine all of these things in the current year.

(2) Loss carryforward leads to an increase in the amount of deferred tax assets, which further leads to a prepayment of the tax by the firm.