The Accounting Policy & Practice Report ® provides financial accounting policy makers, advisors, and practitioners with the latest news, expert insights, and guidance on emerging, evolving,...
Many U.S. companies will have to scramble to make potentially difficult adjustments to income tax amounts they put on their year-end and fourth-quarter reports because President Trump signed the tax overhaul bill prior to the new year.
Financial reporting changes could include big write-downs or write-ups in deferred tax assets and deferred tax liabilities, which could affect corporate earnings.
Companies on a calendar-year reporting schedule would have had the luxury of about three months more to book—and carry out some daunting work—new amounts compared to what would have been in order if the president had waited until at least Jan. 1 to enact the measure, accountants told Bloomberg Tax Dec. 22.
“There certainly would have been a lot less pressure if it had been enacted in January,” Ashby Corum, KPMG LLP’s chief partner for income tax accounting, said in an interview.
The quick signing of the law means more financial reporting work produced more quickly for companies and their external auditors, said Daniel Lynch, a professor of accounting at the University of Wisconsin.
Financial reporting rules for public companies require that corporate reporting effects from law changes, such as tax laws, have to be reflected in the report covering the period of the law’s enactment.
For some companies, the new law means the effect will be shown as early as early to mid-January, depending on a company’s financial reporting timetables on earnings releases.
Calendar-year companies and companies with December quarter-ends “would have had another quarter” before the impact of the new law “would have been shown up in the body of the financial statements,” Corum said.
The reporting tasks carry double weight for companies, such as banking giant Citigroup Inc. These companies have reported net deferred tax asset positions and might have to take substantial reduction to earnings, depending on their deferred tax amounts.
Companies that have deferred tax assets would see the benefits of that net position lessen considerably when the tax rate is reduced. The law calls for a shift from previous calculations of deferred taxes based on a general 35 percent corporate tax rate to the new 21 percent rate.
The Securities and Exchange Commission might respond in coming days to corporate representatives seeking relief or clarity on what some companies view as copious near-term financial reporting expectations. Some had sought guidance on how to fulfill current expectations in light of the new tax law.
The new law also presents what promises to be a more time-consuming and more challenging task: figuring a new tax liability for foreign earnings “deemed repatriated” under the new law.
Amounts accumulated overseas over many years and not previously taxed “are going to be subject to tax all at once, at reduced rates, depending on how much is in cash and other liquid assets versus non-liquid assets,” said KPMG’s Corum.
It can be “quite an undertaking to go through and scrub those books and records for the past 30 years to confirm that the amounts of earnings over those years have been properly computed and tracked,” he told Bloomberg Tax.
To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at email@example.com
To contact the editor responsible for this story: S. Ali Sartipzadeh at firstname.lastname@example.org
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)