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By Steven Marcy
U.S. publicly traded companies should provide in their fourth quarter statements reasonable estimates of future financial reporting impacts of tax reform, Securities and Exchange Commission accounting staff said.
Among the greatest uncertainties of the new tax law (Pub. L. No. 115-97) is estimating deferred tax assets (DTA) and deferred tax liabilities (DTL), the staff said in guidance issued Dec. 22.
The SEC said before President Donald Trump signed the tax bill into law Dec. 22 that it was aware of the reporting burdens the new law might impose and was open to suggestions.
The guidance said the SEC staff “believes reporting provisional amounts for certain income tax effects of the Act will address circumstances in which an entity does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under” the Financial Accounting Standards Board rule for income tax accounting, Accounting Standards Codification 740.
Staff Accounting Bulletin 118 said that the staff realizes that estimating the law’s impacts might prove impossible for some companies to include in financial statements covering the fourth quarter, so it won’t expect estimates in those circumstances. If they can’t provide the estimates, companies should apply their tax accounting under tax law provisions that were in effect immediately before Dec. 22, staff said.
However, a company shouldn’t “exclude a reasonable estimate from its financial statements to the extent a reasonable estimate had been determined,” the SEC staff said.
Companies should also disclose why they can make only provisional estimates of the law’s impacts on tax deferrals and other factors, and what additional information they must obtain to provide a full accounting of the law’s impacts.
The staff said it doesn’t expect companies to provide provisional estimates for the fourth quarter on any taxes owed for unremitted foreign earnings. The staff expects the fourth-quarter impacts of unremitted earnings to be included in future reports, the guidance said.
The SEC staff said it expects companies to fully report the impact of the new law no later than Dec. 22, 2018.
Companies don’t have to file an 8-K form—an immediate disclosure to shareholders of major events that might affect them—when they remeasure a DTA in accordance with the new law, unless the remeasurement reveals the asset is impaired. A company must then file an 8-K notification of the impairment.
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SEC Staff Accounting Bulletin No. 118 is at https://www.sec.gov/interps/account/staff-accounting-bulletin-118.htm.
The tax-related guidance on Form 8-K compliance and disclosures interpretations is at https://www.sec.gov/divisions/corpfin/guidance/8-kinterp.htm.
Copyright © 2018 Tax Management Inc. All Rights Reserved.
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