ACCOUNTING FOR THE TAX CUTS AND JOBS ACT
HOW IS THE FASB ADDRESSING ACCOUNTING ISSUES FROM THE ACT?
On January 18, 2018, the FASB 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.
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.
Stakeholders are encouraged to review and provide comments on the proposed improvements by February 2, 2018.