In a recent meeting of the Board of Directors of Singh Semiconductors, the Board was discussing deferred taxes and the effective tax rate reconciliation disclosures. The Board wanted to learn more about this topic because low effective tax rates relative to the effective tax rates of comparable companies are a potential red flag. At the meeting the following two statements were made by Board members: Statement 1: When analyzing a firm’ s effective tax rate reconciliation disclosures, analysts watch out for companies that report high income tax expense on their financial statements compared to taxes payable because such companies are more likely to be using aggressive accounting methods and have low-quality earnings. Statement 2: High effective tax rates may result when a firm has significant restructuring charges since restructuring charges do not generally have tax cash flow effects in the year they are recorded, but can have significant effects on future cash flows. Are Statements 1 and 2 as made by Singh Semiconductor’s Board members correct or incorrect Statement 1 Statement 2 ①A. Correct Correct ②B. Incorrect Correct ③C. Incorrect Incorrect
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