Market Overview

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

Share:

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.

The
proposed ASU
is available on the
FASB website
.

About the Financial Accounting Standards Board

Established in 1973, the FASB is the independent, private-sector
organization, based in Norwalk, Connecticut, that establishes financial
accounting and reporting standards for public and private companies and
not-for-profit organizations that follow Generally Accepted Accounting
Principles (GAAP). The FASB is recognized by the Securities and Exchange
Commission as the designated accounting standard setter for public
companies. FASB standards are recognized as authoritative by many other
organizations, including state Boards of Accountancy and the American
Institute of CPAs (AICPA). The FASB develops and issues financial
accounting standards through a transparent and inclusive process
intended to promote financial reporting that provides useful information
to investors and others who use financial reports. The Financial
Accounting Foundation (FAF) supports and oversees the FASB. For more
information, visit www.fasb.org.

View Comments and Join the Discussion!