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Client Alert: FASB to Propose ASU Related to Tax Law Change

The Financial Accounting Standards Board (FASB) met yesterday to address the accounting issue pertaining to the deferred tax amounts that are “stranded” in accumulated other comprehensive income (AOCI) as a result of adjusting (repricing) deferred tax assets and liabilities in the Tax Cuts and Jobs Act (the “Act”).

The Board decided to propose an Accounting Standards Update that would allow for a one-time transfer of amounts “stranded” in AOCI, and specifically related to this Act, to retained earnings. There will be a 15 day comment period followed by a Board vote. If approved, FASB intends to allow companies to early adopt the standard for financial statements that have not yet been issued. It is expected that a final standard will be issued by the end of January, which should allow for companies to adopt the guidance prior to filing 2017 financial statements. Adjustments to all deferred tax assets and liabilities as a result of the change in tax rates will still be recorded to tax expense upon the date of enactment, regardless of whether the related temporary differences originated in net income or AOCI.

This decision by the FASB alleviates the accounting complexities of the “day 2” accounting for the “stranded” amounts in AOCI. These amounts arise for items such as market value adjustments for available-for-sale securities, the effects of pension plan accounting, and market value adjustments to cash flow hedges.

We will continue to follow the developments on this issue and provide additional information as it becomes available.

If you have any questions on this topic, please contact Daniel F. Morrill, CPA, Member of the Firm, at 413-726-6857 or dmorrill@wolfandco.com, or your engagement manager or officer.