The Staff of the Office of the Chief Accountant and of the Division of Corporation Finance issued SAB 118 (see: https://www.sec.gov/interps/account/staff-accounting-bulletin-118.htm) in order to provide guidance for issuers as they prepare their financial statements. The staff guidance provides a “measurement period” for issuers to evaluate the impacts of the Tax Cut and Jobs Act on the their financial statements and sets forth staff expectations for disclosure to investors during the measurement period. The Staff also issued a Compliance and Disclosure Interpretation 110.02, which we set out below:
Question: Does the re-measurement of a deferred tax asset (“DTA”) to incorporate the effects of newly enacted tax rates or other provisions of the Tax Cuts and Jobs Act (“Act”) trigger an obligation to file under Item 2.06 of Form 8-K?
Answer: No, the re-measurement of a DTA to reflect the impact of a change in tax rate or tax laws is not an impairment under ASC Topic 740. However, the enactment of new tax rates or tax laws could have implications for a registrant’s financial statements, including whether it is more likely than not that the DTA will be realized. As discussed in Staff Accounting Bulletin No. 118 (Dec. 22, 2017), a registrant that has not yet completed its accounting for certain income tax effects of the Act by the time the registrant issues its financial statements for the period that includes December 22, 2017 (the date of the Act’s enactment) may apply a “measurement period” approach to complying with ASC Topic 740. Registrants employing the “measurement period” approach as contemplated by SAB 118 that conclude that an impairment has occurred due to changes resulting from the enactment of the Act may rely on the Instruction to Item 2.06 and disclose the impairment, or a provisional amount with respect to that possible impairment, in its next periodic report.
See our more detailed client alert here.