FASB issuing guidance on applying tax cut law

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The Financial Accounting Standards Board issued a one-page Q&A document Thursday from its staff letting private companies and nonprofits apply recent staff guidance from the Securities and Exchange Commission on the tax accounting implications of the recently passed Tax Cuts and Jobs Act and plans future Q&A documents, along with an accounting standards update.

In the Staff Q&A, FASB’s staff said they wouldn’t object to private companies and not-for-profit organizations applying the SEC’ s Staff Accounting Bulletin No. 118. They noted that if a private company or not-for-profit organization applies SAB 118, they would be in compliance with GAAP. FASB’s staff members consulted with stakeholders and members of the Private Company Council in forming the view contained in the Staff Q&A.

The FASB staff believes, though, that if a private company or a nonprofit applies SAB 118, it should apply all the relevant aspects of the SAB in their entirety. That includes the disclosures listed in SAB 118. The staff also thinks a private company or a not-for-profit entity that applies SAB 118 should disclose its accounting policy of applying SAB 118 in accordance with paragraphs 235-10-50-1 through 50-3 of the Accounting Standards Codification.

On Wednesday, FASB held a meeting in which it discussed the accounting implications of the new standard and committed to issuing staff Q&A documents such as the one it released Thursday to address several different issues.

According to a summary of the meeting on FASB’s website, FASB also decided to add a project to its agenda on the reclassification of certain tax effects from accumulated other comprehensive income to retained earnings. In addition, FASB decided to require a reclassification from accumulated other comprehensive income to retained earnings for the stranded tax effects resulting from the newly enacted corporate tax rate in the Tax Cuts and Jobs Act. The board also decided to add a broader project to its research agenda on the accounting for subsequent effects of changes in deferred tax liabilities and assets that were originally charged or credited directly to equity (also known as “backwards tracing”).

FASB decided to require the application of the reclassification to each period in which the effect of the new tax law (or part of the law) is recorded. That requirement would be applied retrospectively to the date of enactment if the forthcoming accounting guidance is not adopted early.

FASB decided to require the following transition disclosures:

1. The nature and reason for the change in accounting principle

2. A description of the prior-period information that has been retrospectively adjusted

3. The effect of the reclassification on affected financial statement line items.

FASB decided to permit early adoption for public business entities for which financial statements have not yet been issued and all other entities for which financial statements have not yet been made available for issuance. The proposed amendments would be effective for all entities for fiscal years starting after Dec. 15, 2018, including interim periods within those fiscal years.

FASB concluded it has received enough information and analysis to make an informed decision on the issues presented and that the expected benefits of the amendments justify the expected costs (subject to comment letters received during the comment period). FASB asked its staff to draft a proposed Accounting Standards Update for vote by written ballot. FASB also decided the comment period for the proposed update should be 15 days.

FASB also discussed the staff’s preliminary views on five implementation issues related to the Tax Cuts and Jobs Act, but it didn’t make any decisions on those five issues. Those issues are:

1. The use of SEC Staff Accounting Bulletin 118 by private companies and not-for-profit entities

2. Whether to discount the tax liability on the deemed repatriation of foreign earnings

3. Whether to discount alternative minimum tax credits that become refundable

4. Accounting for the base erosion anti-abuse tax

5. Accounting for global intangible low-taxed income.

FASB’s staff will prepare FASB staff Q&As for each of those issues and will post them to the FASB website at a future date. The Q&A document for the first issue is the one that was posted Thursday.

FASB has also set up a page on its website with information on the Tax Cuts and Jobs Act in which it noted that current GAAP requires 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 have sent unsolicited comment letters to FASB expressing concerns with applying this guidance to deferred tax liabilities and assets related to items presented in accumulated other comprehensive income.

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Accounting standards Financial reporting Trump tax plan Tax cuts Tax reform FASB SEC