Accounting for the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act).

As a result of the Tax Cuts and Jobs Act, stakeholders provided feedback to the FASB on the following financial reporting issues:
 
  • Current Generally Accepted Accounting Principles (GAAP) requires that deferred tax liabilities and assets be adjusted for the effect of a change in tax laws or rates. That effect would be included in income from continuing operations in the reporting period that includes the enactment date of the change. Stakeholders in the banking and insurance industries submitted unsolicited comment letters to the FASB and expressed concerns with applying this guidance to deferred tax liabilities and assets related to items presented in accumulated other comprehensive income (OCI). 
  • Implementation issues related to the Tax Cuts and Jobs Act and income tax reporting:
    • If private companies and not-for-profits can apply SEC Staff Accounting Bulletin (SAB) 118
    • Whether to discount the tax liability on the deemed repatriation
    • Whether to discount alternative minimum tax credits that become refundable
    • Accounting for the base erosion anti-abuse tax
    • Accounting for global intangible low-taxed income

HOW IS THE FASB ADDRESSING ACCOUNTING ISSUES FROM THE ACT?

On January 10, 2018, the Board decided to proceed with developing a proposed Accounting Standards Update (ASU) that enables organizations to reclassify certain stranded tax effects related to the Tax Cuts and Jobs Act from accumulated OCI to retained earnings.

Based on the Board’s tentative decision, the proposed ASU would require the application of the reclassification to each period in which the effect of the Tax Bill (or portion thereof) is recorded, which may be retrospectively to the date of enactment if the guidance is not adopted early.

The Board decided to require the following transition disclosures:
  1. The nature and reason for the change
  2. A description of the prior-period information that has been retrospectively adjusted
  3. The effect of the change on affected financial statement line items.
Based on the Board’s tentative decision, the proposed ASU would allow early adoption for financial statements of fiscal years or interim periods that have not yet been issued or that have not yet been made available for issuance.

The proposed ASU will be issued in January 2018, with a 15-day comment period.
 

HOW IS THE FASB ADDRESSING RELATED IMPLEMENTATION ISSUES?

The FASB staff developed a Staff Q&A document on whether private companies and not-for-profit organizations can apply U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 118. The FASB staff consulted with stakeholders and members of the Private Company Council in forming the view contained in the Staff Q&A.

The Staff Q&A can be found here, and the PDF version can be downloaded here.