FASB Proposes Improvements to Income Tax Accounting related to the Tax Cuts and Jobs Act

By NSA Blogger posted 01-18-2018 03:53 PM

  
Today the FASB issued Proposed Accounting Standards Update, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

The Financial Accounting Standards Board (FASB) today issued a proposed Accounting Standards Update (ASU) intended to help organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017. Stakeholders are encouraged to review and provide comments on the proposed improvements by February 2, 2018.

“After the Tax Cuts and Jobs Act was enacted, stakeholders expressed concerns about current Generally Accepted Accounting Principles (GAAP) that required organizations to adjust deferred tax liabilities and assets after a change in tax laws or rates,” stated FASB Chairman Russell G. Golden. “This proposed ASU will eliminate the stranded tax effects associated with the Act’s change in the federal corporate income tax rate, while improving the usefulness of information reported to financial statement users.”

The proposed ASU requires financial statement preparers to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (or portion thereof) is recorded. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate.

In the period of the reclassification, organizations would make the following transition disclosures:
  • The nature and reason for the change in accounting principle
  • A description of the prior-period information that has been retrospectively adjusted, and
  • The effect of the change on affected financial statement line items.
The proposed amendments would be effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption would be permitted. Organizations would apply the proposed amendments retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 is recognized.

Click here to download the Exposure Draft.
 
Comments on this Exposure Draft are requested by February 2, 2018.  (Refer to the Electronic Feedback Form to provide comments.).
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