It’s not often we talk about financial reporting issues in this venue, but the enactment of the Tax Cuts and Jobs Act creates issues for financial reporting involving accounting for income taxes under Accounting Standards Codification (ASC) 740. Under ASC 740-10-35-4 an entity must take into account the impact of a change in tax law on the entity’s deferred tax liabilities, assets and valuation allowances. ASC 740-10-55-62 makes clear this takes place in the period that includes the date of enactment of the revised law.

The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017, which makes that the date of enactment of the law. Given the complex changes that are part of this law, it may not be possible to complete an evaluation of the impact of this law on an entity’s deferred tax liabilities, assets and valuation allowances in time for reporting activity for the period ended December 31, 2017.

In recognition of this issue, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118. The bulletin allows registrants to make a reasonable estimate of the effects of TCJA and report that as a provisional amount during the “measurement period.”