FASB proposes corporate reporting change related to new tax law

By Ken Tysiac

One challenging effect of new P.L. 115-97, called the Tax Cuts and Jobs Act, on company financial statements would be eliminated under a proposal FASB issued Thursday.

The proposed Accounting Standards Update (ASU) is intended to help organizations reclassify certain so-called stranded income effects in accumulated other comprehensive income resulting from the new tax law, which was enacted in December.

“After the Tax Cuts and Jobs Act was enacted, stakeholders expressed concerns about current generally accepted accounting principles that required organizations to adjust deferred tax liabilities and assets after a change in tax laws or rates,” FASB Chairman Russell Golden said in a news release. “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.”

Under the proposal, financial statement preparers would be required to reclassify tax effects within accumulated 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 amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate.

The following disclosures would be required during the period of reclassification:

  • The nature 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 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 on the proposal can be submitted by Feb. 2 at FASB’s website.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is a Tax Adviser editorial director.

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