Company selection Paper Week 1 - Essay Example

Pet Smart is North America’s largest specialty retailer of pet services and solutions chain with over 966 stores operating stocking more than 13,000 different products (Petsmart, 2007). The company is a publicly traded company who’s stock is traded in the over the counter NASDAQ market. The stock as of September 10, 2007 was trading at $32.45 (Yahoo, 2007). Pet Smart finances are solid and the company was able to generate a net income of over $185 million in the fiscal year 2006. Since the company stocks are traded in the open market and due to the size of the company its finances are of great concern for the public and the SEC audits its financial statements on a recurrent basis.

All its numbers must be in order and to provide all the necessary information about important accounting issues the company in its annual report includes a managerial discussion and analysis session. In the 2006 annual report the company referred to deferred income tax assets as an important subject matter. Deferred income tax assets are the recognition of excess taxes paid above the tax liability (Petretto, 2004). In many jurisdictions companies that have an annual loss in their income statement can obtain a tax benefit that deducts the tax liability; this also creates a deferred income tax asset.

In the company’s MD&A for 2006 Pet Smart explains its method for recognizing deferred tax assets. The company establishes deferred income tax assets or liabilities for the temporary differences between the financial reporting utilizing the expected tax rates to guide the company in creating an accurate estimate (Annual Report, 2006). The company also establishes an allowance for deferred taxes in case their estimates are inaccurate. The carry forward tax privileges the company obtain after a bad fiscal year are never offset since and are utilized whenever possible according to the generally accepted accounting principles.

These types of accounting transaction are occurring in many different locations throughout North America and each of them are recording and tracked independently of each other according to the fiscal laws of the state. The company follows the law closely and if there is any change in particular state law regarding the issues of deferred taxes the company makes the necessary adjustments in the account to comply with the new laws or regulations. The company keeps close relationships with state and city tax authorities and in cases when company underestimates tax liabilities it immediately settles the income tax expense to comply with its fiscal responsibilities stipulated by law.

The company’s books are always open for review whenever a state agency or regulatory body needs to perform any type of audit. As of January 28, 2007 the company had an accrual for income tax contingencies of $12.8 million (Annual Report, 2006). Pet Smart in its MD&A section of its annual report perform an adequate job at explaining the internal accounting procedures concerning deferred taxes. The importance of explaining this subject is that sometimes users that are not accountants might not have knowledge about specialized topics such as deferred tax income assets and might mistakenly misinterpret the results of the financial statements.

For a particular level of income in a certain year the tax expense may be lower due to the utilization of a deferred income tax asset. ReferencesAnnual Report (2006). Petsmart, Inc. 2006 Annual Report. Retrieved September 10, 2007 from http://phx.corporate-ir.net/phoenix.zhtml?c=196265&p=irol-overview Petretto, S. (2004). What are deferred taxes? Uconn School of Business. Retrieved September 11, 2007 from http://www.business.uconn.edu/users/smf/deferred_taxes.htm Petsmart.com (2007). Petsmart Corporate Website.

Retrieved September 10, 2007 from http://www.petsmart.com Yahoo.com (2007). PETM. Yahoo Finance. Retrieved September 11, 2007 from http://finance.yahoo.com/q?s=PETM