Article

SEC to Help Companies Disclose Tax Reform Effects

March 15, 2018

At a recent SEC Speaks event in Washington, D.C., Securities and Exchange Commission (“SEC”) chief accountant Wesley Bricker told attendees that the commission intends to help public companies with disclosures on their periodic filings related to the impact of the Tax Cuts and Jobs Act (“TCJA”).

In his remarks, Bricker referenced Staff Accounting Bulletin No. 118, (Topic 5.EE), Income Tax Accounting Implications of the Tax Cuts and Jobs Act, which was issued in December 2017. The bulletin covers the judgments and assumptions that a company’s management must make when including the effects of tax reform into financial statements. It also tells public companies to take a three-stage disclosure approach when managing uncertainties while preparing financial results and writing footnote disclosures.

The first stage in this approach is for companies to prepare their 2017 financial results by addressing areas related to tax reform that are completed and identifying them in the audited financial statements. In the second stage of disclosures, companies should focus on areas that are incomplete but for which management is able to conduct a reasonable assessment of the impact of applying good faith level of diligence. Bricker noted that these amounts should be listed as provisional. The third and final stage covers aspects where company management has calculated some effects from the TCJA, but it is unable to give a reasonable estimate.

Bricker said that the SEC expects companies to resolve uncertainties related to their initial review of the tax law’s effects within 12 months. He also remarked that going forward, the effects of the TCJA will continue to be part of the SEC’s agenda from a consultations perspective.