FASB addresses financial reporting impacts of new tax law

5 issues will be communicated through a Q&A.

FASB recently addressed numerous financial reporting implications of P.L. 115-97, known as the Tax Cuts and Jobs Act, in an effort to provide financial statement preparers with timely answers to questions they have posed.

The board considered five implementation issues and also agreed to propose a one-time reclassification. The implementation issues were communicated in FASB staff Q&As that were posted to a new FASB website dedicated to tax reform. In the Q&As, FASB's staff stated that:

  • The staff would not object if private companies and not-for-profits voluntarily apply SEC Staff Accounting Bulletin No. 118 (see page 8).
  • The tax liability on the deemed repatriation of earnings should not be discounted.
  • GAAP prohibits discounting deferred taxes, and accordingly, any alternative minimum tax credit carryforwards presented as a deferred tax asset would not be discounted.
  • An entity that is subject to base-erosion anti-abuse tax should measure deferred tax assets and liabilities using the statutory tax rate under the regular tax system.
  • It is permissible for financial statement preparers to use one of two interpretations in accounting for global intangible low-tax income. The staff notes that an entity must disclose its accounting policy related to global intangible low-tax income inclusions in accordance with GAAP.

FASB also proposed a one-time reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the new corporate tax rate. If the proposal is approved, the amount of the reclassification would be the difference between the 35% historical corporate tax rate and the newly enacted 21% rate.

The guidance would be applied to each period in which the effect of the Tax Cuts and Jobs Act (or portion thereof) is recorded, which may be retrospectively to the December 2017 enactment date in some cases. If the proposal is approved, entities would disclose the following in the period in which a reclassification adjustment is made:

  • The nature and reason for the change.
  • A description of the prior-period information that has been retrospectively adjusted.
  • The effect of the change on affected financial statement line items.

The proposal would take effect for all organizations for fiscal years beginning after Dec. 15, 2018, and interim periods within those fiscal years. Early adoption would be permitted. The proposed amendments would be applied retrospectively to each period (or periods) in which the effect of the change in the federal corporate income tax rate in the new tax law is recognized.

Comments were due Feb. 2.

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