FASB to Review Backwards Tracing Related to Tax Reform

calendar iconJune 2, 2020

The Financial Accounting Standards Board’s (“FASB”) research team plans to review how the tax code changes stemming from the Tax Cuts and Jobs Act (“TCJA”) will impact backwards tracing, which is a practice U.S. GAAP currently prohibits.

Backwards tracing is a practice in which the impact of a change in a deferred tax credit or charge is included in the same line item wherein the deferred taxes were initially recorded. According to FASB staff member Jason Bond, the board wants to review the costs of backwards tracing and consider alternatives to determine whether the benefits outweigh the costs.

Bond remarked that when Accounting Standards Update (“ASU”) No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, was issued, the FASB retained U.S. GAAP’s ban on backwards tracing despite requests from the banking industry to eliminate it. However, Bond noted that the FASB is now able to review questions that it previously believed it could not answer while finalizing ASU No. 2018-02. The additional time will allow the FASB to assess the costs and benefits of backwards tracing and discuss eliminating the ban.

Other projects the FASB is working on related to the TCJA involve attempts to streamline disclosure guidance for income taxes and simplify U.S. GAAP’s requirements for income tax accounting. Additionally, FASB chairman Russell Golden announced that the board would examine the more significant effects from tax reform later this year after reviewing the 2017 year-end filings and the Securities and Exchange Commission filings for the 2018 first and second quarters.