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How companies have been accounting for foreign earnings and their use of a new anti-abuse tax under the December 2017 tax overhaul will come under the scrutiny of U.S. standard setters in coming months.
The Financial Accounting Standards Board plans to monitor annual and quarterly financial reports over the next few quarters—as companies account for changes resulting from the federal Tax Cuts and Jobs Act ( Pub. L. No. 115-97)—to decide whether the board should make changes to existing tax-related accounting rules or follow another path.
FASB plans in the third quarter to have its staff communicate results of its preliminary research on how companies account for certain taxes under the overhaul, FASB Chairman Russell Golden said March 20.
FASB will discuss the research results sometime after companies release second-quarter earnings reports and after the board’s staff has a chance to study the filings with the Securities and Exchange Commission.
The board expects that companies will differ in their reporting on, for example, the global intangible low-taxed income, or “GILTI,” provision of the tax law and one aspect of the base erosion anti-abuse tax, or “BEAT,” as it relates to deferred taxes, the FASB chairman said.
FASB’s staff would review annual or quarterly reports to monitor those issues to weigh possible improvements to accounting guidance. It could, for example, consider how to better align companies’ accounting after deciding how significantly they differ in practice or if investors are aware of such differences, Golden said.
The board also would like “to understand what additional information investors may need in companies’ footnotes” to analyze the effects of the recent Congressional changes to tax policies, Golden said.
“We didn’t think just looking at an annual report would give us enough information,” he told Bloomberg Tax. The board thinks it would be important to look at fresh quarterly reports, along with annual reports, “so that we could have some trend analysis,” Golden said earlier at a meeting of FASB’s main advisory council.
The board expects to see diverse, tax-related accounting practices by companies, the FASB chief said.
FASB would then consider “how significant is the diversity” and “how many companies chose” one accounting method “versus another under the GILTI provision,” he said.
After hearing comments from FASB’s Financial Accounting Standards Advisory Council, Golden said council members “like our plan related to monitoring the progress” in applying accounting rules and new, tax-related guidance issued by FASB in the wake of the tax law overhaul.
In February, FASB issued an accounting standards update, ASU 2018-02, aimed at improving reporting on deferred tax assets and deferred tax liabilities.
In that, the board targeted what are called “stranded tax effects” within the equity section of the balance sheet to more accurately reflect the impact of a corporate tax rate that was lowered from 35 percent to 21 percent by the new tax law.
Stranded tax effects are those amounts that are booked in a section of the equity lines called “accumulated other comprehensive income” and which don’t reflect the proper tax rate, as bankers and others had argued.
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