Many different companies around the globe participate in transfer pricing. It is more common than many people would guess because of the growth in multinational corporations but also in regards to acquisitions. Transfer pricing occurs when related parties exchange for goods. They are only useful for tax purposes so therefore should only be apparent on the parent’s financial statements. Throughout our research on intercorporate transfer pricing we were intrigued by the effects it has on taxes purposes and financial statements.
Transfer pricing has a direct effect on the financial statements. For this reason they are a crucial point for tax purposes as well. According to FASB Codification Sec. 482 “A section of the U.S Tax Code allowing the IRS to allocate assets, income, deductions, and so forth between different branches …show more content…
The codification is vital to understanding how accounting standards track transfer pricing within intercorporate organizations. This will directly affect how tax authorities and taxpayers address the financial statements properly. Another thing to consider is how the transaction is being recorded. There are three different types of transactions. These include, upstream, downstream and lateral transactions. The different types of transactions need to be recorded correctly because of the direct impact it has on the financial statements, which directly effects stakeholders when it comes to a profit or loss. The research shown on tax purposes as well as the preparation on the financial statements when dealing with intercorporate transfer pricing could be a high risk for a company if it is not done well. We believe the knowledge of this research should be known by all accountants in the field to avoid material misstatements but it is also essential to avoid disappointing any