As you have certainly heard by now, last week President Trump signed into law the Tax Cuts and Jobs Act. Also last week, I posted on how quickly companies could be required to calculate adjustments to their deferred tax asset (DTA) account to reflect the fact that compensation payments that the companies previously projected as deductible under 162(m) would no longer be deductible because of the elimination of the performance-based compensation exception under Section 162(m) (and other expansions thereof). (See, Expect a Call from You Accountants in Early January - Tax Cuts and Jobs Act.) Of course, the Act made other significant changes affecting companies’ DTAs, but I was most concerned about the impact of the 162(m) changes and application of the Transition Rule.
Then, the day after I posted, the SEC came to the rescue, releasing Staff Accounting Bulletin No. 118 (the SAB) and Compliance and Disclosure Interpretation 110.02. Recognizing that many companies would be unable to complete their accounting for the income tax effects of the Act by the time they are required to issue financial statements for the reporting period ending December 31, 2017, the SAB allows companies to determine and report a reasonable estimate of the tax effects of the Act in its financial statements (e.g., the upcoming 10-K). Importantly, the SAB also asserts that it would not be appropriate for a company to exclude a reasonable estimate from its financial statements to the extent it had determined a reasonable estimate. Companies should report the reasonable estimate as a provisional amount in a company’s financial statements for the most recent measurement period.
The SAB lists eight financial statement disclosures companies should include to provide information about the material financial reporting impacts of the Act for which the accounting is incomplete (which I won’t list here). CDI 110.02 merely confirms that the accounting implications of the Act will generally not trigger impairment reporting under Form 8-K.
Hopefully I did not ruin anyone’s holiday celebration by making them think about their DTAs.