US President Donald Trump today signed the Tax Cuts and Jobs Act into law, which, among other things, slashes the corporate tax rate, and completely changes the US international tax system.
Securities Exchange Commission staff also followed up today with new guidance on how reflect the impact of the new law in financial statements, issuing Staff Accounting Bulletin 118 (SAB 118) and Compliance and Disclosure Interpretation 110.02 (C&DI 110.02).
While it has been clear for some time that the President intended to sign the tax reform bill, for awhile, many believed that the actual signing would not take place until 2018.
Enactment of tax reform in 2017 means the effects of the new law must be reflected in 2017 financial statements, including, for example, deferred tax assets. Finishing the required analysis for companies will be difficult, especially for those that have fiscal year ending December 31.
The staff guidance provides special rules to follow during a company’s “measurement period,” which begins on December 22, 2017, the date of new tax law’s enactment, and ends when a firm has obtained, prepared, and analyzed the information needed to complete the accounting requirements under ASC Topic 740, dealing with accounting for income taxes.
The SEC’s new C&DI 110.02 provides that the re-measurement of a deferred tax asset to incorporate the effects of newly enacted tax rates or other provisions of the Tax Cuts and Jobs Act does not trigger an obligation to file under Item 2.06 of Form 8-K.