FASB Finalizes Standard Related to Tax Reform

February 16, 2018

The Financial Accounting Standards Board (“FASB”) has issued an Accounting Standards Update (“ASU”) concerning certain stranded income tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act. ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, gives financial statement preparers the option to reclassify stranded tax effects in accumulated other comprehensive income to retained earnings in every period wherein the impact of the new corporate income tax rate in the new tax law (or portion thereof) is recognized.

As a result of the new guidance, financial statement preparers must provide a description of the accounting policy for reclassifying income tax effects from accumulated other comprehensive income. Preparers are also required to disclose whether they will reclassify the stranded income tax effects from tax reform, and provide information on the other reclassified tax effects.

ASU No. 2018-02 impacts any company required to apply Topic 220, Income Statement—Reporting Comprehensive Income, that has items of other comprehensive income wherein the related tax effects are disclosed in other comprehensive income as mandated by GAAP.

Companies must apply the new guidance for fiscal years, including interim periods within such years, starting after December 15, 2018. Early adoption will be allowed, and companies should apply the amendments either during the adoption period or retrospectively to every period or periods where the impact of the new corporate income tax rate is recognized.