Although accounting principles and practices normally form the basis for tax assessment, there are reasons why there should sometimes be variations between the figures used for commercial accounting and those used for tax assessment. These reasons include the different purposes of accounting and taxation, difficulties in applying relevant economic concepts and the administrative effectiveness required of a tax system. The recent Secan case has renewed interest in these issues and this paper also examines recent developments in the UK and internationally. It concludes that the relationship between accounting and taxation is an evolving one but there seems to have been a clear movement towards greater reliance on commercial accounts for the purposes of taxation. It is, therefore, suggested that the relevant areas of tax law are reviewed to ensure that they continue to meet the requirements of an effective tax system.

The objectives of accounting and taxation are not always the same. The purpose of commercial accounting is the preparation of information for the purposes of control and decision-making and this process may require interpretation as well as simply recording factual information. The main purpose of taxation is usually to raise revenue but it is also used as an instrument of government economic and social policy. For a tax system to operate successfully within the law requires a degree of certainty that may not always be appropriate for commercial accounting. Furthermore, there may be alternative methods of preparing accounts that are equally acceptable in terms of accounting standards but the choice of which might be influenced by the taxation implications in a way that was not intended when tax legislation was drafted.

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