Companies Eye Tax Asset Disclosure Requirements From Tax Revamp

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By Steve Burkholder

U.S. company accountants are closely following how a cut in the corporate tax rate from the expected tax law overhaul will affect disclosure requirements for deferred tax assets that they must make in financial statements.

“We’re all on pins and needles watching it,” Lori Locke, controller of Gannett Co. Inc., told Bloomberg Tax Dec. 4. “It’s truly impactful.”

Companies that have deferred tax assets on their balance sheets would see the benefits of that net position lessen considerably when the tax rate is reduced, as prescribed in tax legislation the House and Senate have approved.

A decrease in the net deferred tax asset position might affect earnings. A net deferred tax liability position wouldn’t have adverse impact on the income statement.

The companies would have to disclose those effects.

The first quarter of 2018 most likely would be a crucial time to reflect the expected effect of a tax rate cut, but companies such as Gannett are focused on the tax overhaul’s potential financial reporting tasks for 2017 annual reporting, Locke said.

Disclosures for Changed Risk Factors

Companies also are considering disclosures on risk factors stemming from the potential effects of tax law changes, Locke and Brian Lane, partner with Gibson, Dunn & Crutcher LLP, said at a Washington conference of the American Institute of CPAs.

Such risk factor disclosures would be part of a companies’ reporting known as management disclosure and analysis, or MD&A, in its annual report.

“Without a doubt the tax disclosures are going to be key,” said Christine Davine, a Deloitte LLP deputy managing partner for professional practice.

Lane predicted that many companies will make tax–related MD&A disclosures.

“I’m getting calls” on “whether clients should add risk factors” on the potential effects of the tax overhaul, Lane said.

Lane said companies also were contacting him about whether they should make an unscheduled securities filing stemming from a specified event, known as a Form 8-K submission.

Any tax policy changes would affect disclosures made in quarterly and annual financial statements, starting in the period in which a bill is signed into law or otherwise enacted.

To contact the reporter on this story: Steve Burkholder in Washington at sburkholder@bloombergtax.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bloombergtax.com

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