How did Citigroup “acquire” its large deferred tax asset, and what future economic benefit does it represent?

Citigroup Assignment Questions

  1. How did Citigroup “acquire” its large deferred tax asset, and what future economic benefit does it represent?
  2. What does Mike Mayo think Citigroup should do (be specific)? Describe how this would affect Citigroup’s financial statements (in words; you do NOT need to provide journal entries).
  3. Do you agree with Mayo’s concerns about the extent of Citigroup’s DTAs? Why or why not?
  4. Why might Citigroup be reluctant to follow Mayo’s advice?
  5. Mayo is somewhat unusual among analysts because he points out negative characteristics of companies he covers. Give two reasons why analysts might be generally positive about the companies they cover.
  6. Refer to Exhibit 1 for details of the GAAP standard on deferred taxes (see especially the section on “Valuation Allowances”). If you were the KPMG partner in charge of the Citigroup audit, would you sign off on Citigroup’s financial statements (assuming the firm did not recognize the valuation allowance)? Why or why not?
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