FASB Receives Support for Proposed Tax Reform Guidance

February 9, 2018

Numerous banking institutions, insurers, and financial trade organizations support the Financial Accounting Standards Board’s (“FASB”) proposed response to the Tax Cuts and Jobs Act. In comment letters on Proposed Accounting Standards Update (“ASU”) No. 2018-210, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income, groups like the American Bankers Association urged the FASB to approve its proposed amendment. Proposed ASU No. 2018-210 aims to reduce the accounting effects of complying with the new tax law and simplify financial statements for investors.

The FASB released the proposal after banks and insurance companies raised concerns over certain requirements introduced by the Tax Cuts and Jobs Act. Under current accounting standards, companies must remeasure deferred tax assets and deferred tax liabilities to reflect the new corporate tax rate (21 percent), and the change in value must be presented in current earnings, even when the related deferred tax items were initially recognized in accumulated other comprehensive income. To ease concerns, Proposed ASU No. 2018-210 would require for companies to reclassify the stranded effects from other comprehensive income to retained earnings. The reclassification amount would equal the initial amount charged to other comprehensive income minus and what would have been charged at the new corporate tax rate.

While its proposal received high praise from banks and insurance companies, the FASB also heard from concerned parties over the reclassification requirement. One Big Four firm suggested the provision could cause non-financial companies to disclose misleading information on their reports to shareholders. Additionally, the CFA Institute, a group representing securities analysts, believes that the change could mislead investors on a company’s financial situation.

The FASB reviewed feedback regarding the Proposed ASU No. 2018-210 on Wednesday and will draft a final standard, which is expected to be issued by February 16.