Accounting rule changes that have a flow through impact

It has been a busy year for the Financial Accounting Standards Board (FASB). A number of accounting rule changes have been promulgated that will have a flow-through impact on the tax provision in the financial statements. These include:

• ASC 606 Revenue Recognition. New rules are in effect that require companies to use a 5-step process to determine when revenue should be recognized. Once the GAAP treatment is determined, the effect of the changes must also be reflected in the tax provision.

• ASU 2015-17 Classification of all deferred tax liability and assets as non-current. This change became effective for all entities effective for periods beginning after December 31, 2017.

• ASU 2016-09 Stock Compensation. All excess tax benefits or deficiencies must be treated as tax expense in the income statement without regard to any reduction in current-period taxes payable caused by the benefits.

• ASU 2016-16 transactions other than inventory. For years beginning after December 15, 2018, all entities are required to use current accounting for intercompany transactions with the exception of inventory transactions.

• ASU 2018-2 Reclassification of disproportionate tax effects on OCI. Effective for years beginning after December 15, 2018, companies can elect to reclassify “trapped” taxes from accumulated other comprehensive income (OCI) to retained earnings.

• ASU 2018-11 Leasing Standard. This guidance provided updates to ASC 842, Accounting for Leases. It focused on two main areas: transitioning to the new standard and separating the components of a contract.

For a more detailed discussion, we recommend that you download our recent whitepaper, “2018 ASC 740 Year-End Considerations” here.

The complexities of these accounting rule changes and their impact on your situation should be discussed with your tax advisor as soon as possible. Call us at 716. 847.2651 or connect with us here.