Proceedings

however to be enlarged upon and also consider the evolution of the taxation levels and
of the tax deduction systems applied in each jurisdiction (Aisbitt, 2002).
Accounting standards try to discourage exaggerations when applying this principle,
stating, for instance, that prudence allows neither the constitution of excessive
provisions, or the deliberate asset or revenue undervaluation, nor the deliberate debt
or expenditure overvaluation, as financial statements would thus no longer be neutral
and hence they would stop being reliable.
Considering the impact of prudence on accounting earnings, the taxation body is
extremely careful to the consequences of prudence in terms of expenditure (Niskanen
and Keloharju 2000). As concerns Romania’s case, if we only take into consideration
the depreciation adjustments and the provisions (Givoly et al. 2007), we will find in
the tax code drastic limitations applied to their tax recognition. If we focus on
business entities other than those with mostly financial activities, we notice that the
list of deductible provisions (Feleaga et al. 2010) is rather short:
a) for performance bonds granted to customers;
b) for accounts receivable depreciation;
c) for the closing and post-closing follow-up of waste deposits;
d) for land restoration, after natural deposit exploitation.
As compared to the tons of adjustments and provisions allowed by accounting rules,
the 4 categories above seem rather few. And the limitations do not stop here: tax
recognition is only achieved if additional specific requirements are met.
Another issue that relies on the principle of prudence is the treatment applied to
subsequent fixed asset-related expenditure. The rule is roughly the same from both the
accounting and fiscal viewpoints: any subsequent expenditure designed to improve
the initial technical parameters of the assets becomes fixed, provided it leads to
additional future economic benefits – the taxation regulation (HG 2139/2004)
illustrates the example of buildings. Although there does not really seem to be clear
differences between the two sets of standards, the estimate according to which one
determines whether additional future economic benefits will be gained is a strongly
subjective one. Therefore, we can assume that this compulsory accounting prudence
could lead to the capitalization of a lower amount of expenditure than expected by the
taxation body.
Intangible assets may also be treated differently from the accounting and fiscal
viewpoints, which also points out the differences between the fiscal and accounting
prudence. Thus, whereas the fiscal rule explicitly recognizes the recording in the
books of patents, trademarks, copyrights or development expenditure, the same rule
stipulates that the accounting depreciation of goodwill (which is compulsory,
according to the OMPF 3055/2009) is not deductible. The opposite example is the
case of computer software: fiscally speaking, its depreciation takes three years,
although it may actually be used longer than that. This is one of the few examples
where the taxation standard is more prudent than the accounting standard.
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