Accounting and Financial Statement Impacts

By Mark A. Ferm, CPA, Accounting & Auditing Partner

President Trump signed new tax reform legislation into law on December 22, 2017.  The new law includes a number of provisions impacting businesses including changes to certain business deductions, corporate tax rates and the treatment of various aspects of international taxation.  The enactment of this law can have a significant impact on the financial reporting of affected businesses.

There are numerous areas of the new tax law that will impact a company’s financial statements, but some of the most common questions we get are:

Question: When will this new tax law impact my company’s financial statements?

Answer:  The changes in tax rates and other changes under the law are accounted for in the period of enactment under accounting principles generally accepted in the United States of America (“GAAP”).  The enactment date in the United States is the date the President signs the bill, so in this case December 22, 2017.  In other words, many changes for a company with a calendar year-end will be reflected in its 2017 financial statements.

Question: The federal tax rate was lowered to 21%.  How will this impact my company’s financial statements?

Answer:  One of the more significant implications to the new tax law is the lowering of the corporate tax rate to 21%.  Deferred tax assets and liabilities previously measured at a higher federal tax rate will have to be remeasured to the lower rate as of December 31, 2017.  This remeasurement will be accounted for in a company’s provision for income taxes reflected in its statements of earnings.  This may not be as impactful to companies whose primary measure of financial performance is earnings before interest taxes depreciation and amortization (“EBITDA”); however, companies that place a higher level of importance on net income may need to assess the impact this has on stakeholders.

Question: I have read about a potential new “toll charge” that will be assessed on certain foreign earnings.  What does this mean and how will this impact financial statements?

Answer:  The new tax law requires a mandatory repatriation of certain undistributed foreign earnings and profits (“E&P”) after 1986, resulting in a toll charge of either 15.5% or 8% depending on what assets the E&P is held in.  We are anticipating this to be one of the more complex and challenging areas of the new tax reform to account for.  Companies may need to record a liability for this toll charge in its 2017 financial statements and provide additional disclosures related thereto.



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