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One problem we have with the definition of profits in today's world is that they do not always represent cash flow. The true test of the health of any business is unencumbered cash flow. I have theorized that the different accounting treatments of expenses under GAAP vs. tax policy has exacerbated this problem. Some of the justifications used for schemes such as the Enron off-the-balance-sheet treatments have been that such transactions are perfectly legal under tax accounting.
The main problems with tax accounting are that it is negotiated via the political process and political standards of accounting have nothing to do with the fundamental health of the enterprise.
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