FASB Proposes Improvements to Income Tax Accounting
Related to the Tax Cuts and Jobs Act
Norwalk, CT, January 18, 2018—The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to help organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017. Stakeholders are encouraged to review and provide comments on the proposed improvements by February 2, 2018.
“After the Tax Cuts and Jobs Act was enacted, stakeholders expressed concerns about current Generally Accepted Accounting Principles (GAAP) that required organizations to adjust deferred tax liabilities and assets after a change in tax laws or rates,” stated FASB Chairman Russell G. Golden. “This proposed ASU will eliminate the stranded tax effects associated with the Act’s change in the federal corporate income tax rate, while improving the usefulness of information reported to financial statement users.”
The proposed ASU requires financial statement preparers to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (or portion thereof) is recorded. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.
In the period of the reclassification, organizations would make the following transition disclosures:
- The nature and reason for the change in accounting principle
- A description of the prior-period information that has been retrospectively adjusted, and
- The effect of the change on affected financial statement line items.
The proposed ASU is available on the FASB website.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.