Disclose Multiple Effects of Tax Law, Not Just One: SEC Staff

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By Denise Lugo

The SEC’s Division of Corporation Finance will monitor—over the next few months—quarterly filings to see how companies’ disclosures about the Tax Cuts and Jobs Act evolve, Corp Fin. Chief Accountant Kyle Moffatt told a financial reporting conference.

For the first time since the tax law was enacted, a large swath of public companies will begin filing first quarter results—"10Q” reports that show earnings but also include footnote disclosures about effects of laws or accounting rule changes.

Questions companies raised about the tax law go beyond accounting or the Staff Accounting Bulletin 118’s disclosure context, Moffatt told a financial reporting conference at Baruch College in New York May 3. SAB 118 are rules that allow companies to provide estimates of the tax law’s effects.

Companies’ questions center around “if certain things can be done to adjust for the impact of the Act,” Moffatt said. Companies should show the impacts of the Act, but also highlight the facts surrounding those items adjusted for impacts, he said.

Unless the Securities and Exchange Commission thinks something is misleading or runs afoul of its guidance, companies won’t get a lot of staff comments on that issue, Moffatt said.

Don’t Adjust for Just One Impact

SEC’s Corporation Finance remains concerned about situations in whichcompanies adjust for only one impact when more adjustments are warranted, Moffatt also said. “So think about adjusting for the reduced tax rate—but they’re not adjusting for other impacts,” Moffatt said.

If, for example, they’re not adjusting for the international taxes that would arise, or even the reduction of the availability of net operating losses (NOLs), “we would question that and we would probably say it would be inappropriate.” he said.

In the context of pro forma financials—statements based on certain assumptions and projections—SEC would also have concerns if companies reflected one but not all of the impacts, Moffatt said.

To contact the reporter on this story: Denise Lugo in New York at dlugo@bloombergtax.com

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

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