FASB Proposes Tax Cuts and Jobs Act Guidance

January 29, 2018

A proposed Accounting Standards Update has been issued reflecting provisions resulting from the Tax Cuts and Jobs Act. The Financial Accounting Standards Board’s (“FASB”) proposal addresses concerns over present Generally Accepted Accounting Principles requiring companies to amend deferred tax liabilities and assets after changes to tax laws or rates. The proposed amendments are expected to reduce the stranded tax effects related to the corporate income tax rate change and improve the helpfulness of information shared with financial statement users.

According to Proposed Accounting Standards Update No. 2018-210, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, financial statement preparers would have to reclassify stranded tax effects in accumulated other comprehensive income to retained earnings during each period wherein the effect of corporate income tax rate change (as provided in the new tax law) is recorded. The reclassification would equal the difference between the previous corporate income tax rate (35 percent) and the new tax rate (21 percent).

In the reclassification period, companies would have to disclose the nature and reason for the accounting principle change. Additionally, companies would have to describe the prior-period information that was retrospectively adjusted and reveal the effect of the change in impacted financial statement line items.

Comments on the proposal are due Friday. If adopted as proposed, the changes would go into effect for companies for fiscal years (including interim periods within those years) starting after December 15, 2018. Companies would be allowed to adopt the amendments early and required to apply them retrospectively to any period wherein the effect of the new corporate income tax rate is recognized.