FASB members moved quickly Wednesday as they seek to provide financial statement preparers with a targeted improvement to reclassify stranded tax effects from the new tax reform law.
During a public meeting, FASB voted to have its staff prepare a draft for a final ballot on an Accounting Standards Update that is intended to provide relief from a challenging effect of the newly enacted P.L. 115-97, known as the Tax Cuts and Jobs Act.
Under the standard, entities will have the option to reclassify tax effects within other comprehensive income (referred to as stranded tax effects) to retained earnings in each period in which the effect of the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded.
The standard will take effect for all entities for fiscal years beginning after Dec. 15, 2018, and interim periods within those fiscal years. Early adoption will be permitted upon issuance of the standard, as FASB recognizes the urgency of the guidance and has moved quickly on the project. FASB’s staff projected that a draft may be available for a vote as soon as Friday.
FASB agreed that entities should be given the option to reclassify retrospectively or at the beginning of the period in which the adoption is elected.
Transition disclosures would include:
- The nature of and reason for the change in accounting principle.
- A description of the prior-period information that has been retrospectively adjusted.
- The effect of the change on the affected financial statement line items.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a JofA editorial director.