Will the Tax Cuts and Jobs Act have a material impact on your company’s tax position? If so, how will you calculate and disclose it? Fortunately, the SEC has announced guidance in a recent press release and related statement.
A new Staff Accounting Bulletin 118 examines how to apply the Financial Accounting Standards Board standard on accounting for income taxes in any reporting period that includes December 22, 2017, the date the tax bill was signed into law. The guidance addresses situations where the accounting for the income tax effects of the new law is incomplete when financial statements covering the bill’s enactment date are required to be issued. In such situations, companies may report the income tax effects of the law as “provisional amounts” based on “reasonable estimates,” which would then be subject to adjustment during a “measurement period.”
A new Form 8-K Compliance and Disclosure Interpretation 110.02 clarifies that the re-measurement of a deferred tax asset to incorporate the effects of the new tax law does not trigger an obligation to file under Item 2.06 of Form 8-K, material impairments. If a company concludes that an impairment has occurred, it may “disclose the impairment, or a provisional amount with respect to that possible impairment, in its next periodic report.”
Bill Hinman, Director of the Division of Corporation Finance, explained this approach, "This guidance recognizes that investors demand and deserve high-quality information, while also recognizing that entities may face challenges in accounting for one of the most comprehensive changes to the U.S. federal tax code since 1986."