The Securities Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) 118, to assist registrants and address uncertainty surrounding situations where registrants have not completed their analysis of the income tax effects of the Tax Cuts and Jobs Act (the “Act”) upon issuance of an entity’s financial statements for the reporting period in which the Act was enacted.
The staff provides guidance on three scenarios surrounding the analysis of the impact of SAB 118:
When the measurement of certain income tax effects cannot be reasonably estimated, no provisional amount would be reported and registrants would apply the tax laws in effects immediately prior to the ACT.
When certain income tax effects can be reasonably estimated, provisional amounts or adjustments to such amounts in the measurement period should be included. The measurement period is complete when the accounting for the registrant is complete, which will not extend beyond one year from the enactment date of December 22, 2017. Should the registrant need to adjust its provisional amounts, during the measurement period, as further information is obtained, the registrant should report the additional effects in income from continuing operations as an adjustment to tax expense or benefit in the reporting period the amounts are determined in the financial statements.
When the analysis is complete, registrant must reflect the tax effects of the ACT.
The registrant is required to include specific disclosures upon inclusion of provisional amounts in the financial statements. According to the SAB, the registrant should include the following disclosures upon inclusion of provisional amounts in the financial statement:
Qualitative disclosures of the income tax effects of the Act for which the accounting is incomplete;
Disclosures of items reported as provisional amounts;
Disclosures of existing current or deferred tax amounts for which the income tax effects of the Act have not been completed;
The reason why the initial accounting is incomplete;
The additional information that is needed to be obtained, prepared, or analyzed in order to complete the accounting requirements under ASC Topic 740;
(The nature and amount of any measurement period adjustments recognized during the reporting period;
The effect of measurement period adjustments on the effective tax rate; and
When the accounting for the income tax effects of the Act has been completed.
If you have questions on this topic and would like assistance please contact Elberta Nizzoli at ENizzoli@SingerLewak.com or dial 310.477.3924.
Elberta Nizzoli Partner ENizzoli@SingerLewak.com