Significant Accounting & Reporting Updates
The Financial Accounting Standards Board (FASB) recently posted a Q&A stating its staff would not object to private companies and not-for-profit entities applying SAB 118 on the application of Topic 740 in the reporting period that includes the date on which the 2017 Tax Cuts and Jobs Act was signed into law. The Q&A is available here.
The Securities and Exchange Commission (SEC) staff issues statements expressing a view on applying topics in the FASB Accounting Standards Codification (ASC) and/or disclosure requirements through staff accounting bulletins (SABs). These statements represent the practices and interpretations followed by the SEC staff. Historically, even though the SEC staff’s views and interpretations aren’t directly applicable, private companies and not-for-profit entities have chosen to apply the guidance in the SABs.
When the 2017 Tax Cuts and Jobs Act (Act) was signed into law, the SEC staff released SAB 118 for applying Topic 740, Income Taxes as it relates to the Act. SAB 118 outlines the approach companies may take if they determine that the necessary information is not available (in reasonable detail) to evaluate, compute and prepare accounting entries to recognize the effect(s) of the Act by the time the financial statements are required to be filed. Companies may use this approach when the timely determination of some or all of the income tax effect(s) from the Act is incomplete by the due date of the financial statements. SAB 118 also prescribes disclosures that reporting entities must provide in these circumstances.
The FASB staff would not object to private companies and not-for-profit entities applying SAB 118, which the staff believes complies with generally accepted accounting principles. This view is based upon the historical application of SABs by private companies and not-for-profit entities.
The FASB staff also believes that a private company or not-for-profit entity opting to apply SAB 118 would need to do so in its entirety, including the disclosure requirements. Such reporting entity should also disclose its accounting policy of applying SAB 118.
The FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income to provide entities an option to reclassify certain “stranded tax effects” resulting from the recent U.S. tax reform from accumulated other comprehensive income to retained earnings. This new standard is available here, and it takes effect for all entities in fiscal years beginning after Dec. 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.
For more information on the matters discussed above, please connect with us.
Material discussed in this communication is meant to provide general information and should not be acted on without obtaining professional advice tailored to you or your company’s individual and specific needs. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by any person or entity, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This information is for general guidance only and is not a substitute for professional advice.
The information contained herein should not be construed as personalized investment advice. Investment in securities involves the risk of loss, and past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this document will come to pass. Historical performance results for investment indexes and/or categories generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that your portfolio will match or outperform any particular benchmark.
Information presented was obtained from sources deemed qualified and reliable; however, MFA makes no representations as to accuracy, completeness, suitability, or validity of any information within this communication and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any forward-looking statements are believed to be reasonable; however, MFA gives no assurance that such expectations will prove to be correct.