New SEC Staff Guidance on Accounting and Disclosure for the Tax Cuts and Jobs Act

On December 22, 2017, the staff at the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 118 to provide guidance on the application of US generally accepted accounting principles (GAAP) in accounting for the income tax effects of the Tax Cuts and Jobs Act (TCJA). 

The new guidance provides certain relief in circumstances when a registrant doesn’t have the necessary information available, prepared, or analyzed—including computations—in reasonable detail to complete the accounting under ASC Topic 740, Income Taxes, in the reporting period in which the TCJA was enacted. 

The SEC staff also issued Exchange Act Form 8-K Compliance and Disclosure Interpretation Question 110.02 (C&DI Question 110.02) to address how registrants are to comply with the requirements of Item 2.06 of Form 8-K as they evaluate and determine the implications of the TCJA on their financial reporting. 

The new guidance is effective as of December 22, 2017.


The TCJA was signed into law on December 22, 2017, and will broadly impact businesses of all sizes. The bill significantly reduces the income tax rate for corporations and eliminates the corporate alternative minimum tax. It also makes major changes related to the taxation of foreign income.

Affected companies will be required to:

  • Remeasure deferred tax assets and liabilities for the changes, including any change in the need for a valuation allowance
  • Assess the impact of any disallowed deductions or credits on the company’s effective tax rate
  • Assess the state tax implications of the federal changes, which will depend on the degree of conformity the state has with the Internal Revenue Code
  • Assess the impact on their disclosures, including the need to potentially include additional items in their effective rate reconciliation because of the lowered corporate rate
  • Consider the impact on tax internal controls and make appropriate modifications to address the need for different information, processes, or both

Companies with international operations will also need to assess the impact of the comprehensive changes on their financial statement positions and disclosures. Those with undistributed foreign earnings must assess the need for current and noncurrent liabilities for the toll-charge if payment is spread.

Key Accounting Provisions

SAB 118 allows for a measurement period approach, which means that during the measurement period, the registrant records adjustments for the effects of the TCJA to the extent a reasonable estimate for all or a portion of the effects of the law can be made. 

To the extent that all necessary information isn’t available, prepared, or analyzed—including computations—a registrant may initially recognize provisional amounts. The impacts of the TCJA would then be recognized in subsequent periods when the registrant obtains, prepares or analyzes the necessary additional information that, if known, would’ve affected the provisional amounts initially recognized.

The measurement period ends when the registrant has obtained, prepared, and analyzed the information to complete its accounting. However, the measurement period can’t extend beyond one year from the enactment date.


Here are summaries of the three possible scenarios. A registrant will likely need to apply more than one of these when determining the accounting for the TCJA, since they may be able to complete the accounting for certain provisions earlier than others. Each situation will depend on the specific facts and circumstances.

Measurement of Certain Tax Effects Is Complete

The registrant records the effects of the change resulting from the TCJA for which the accounting is complete. These amounts aren’t—or no longer are—provisional and can’t be adjusted further. 

Measurement of Certain Income Tax Effects Can Be Reasonably Estimated

In this scenario, the registrant records provisional amounts—or adjustments to provisional amounts—for the effects of the change resulting from the TCJA for which the accounting is not complete, but for which a reasonable estimate can be determined.

Measurement of Certain Income Tax Effects Can’t Be Reasonably Estimated

The registrant doesn’t record a provisional amount for the effects of the change resulting from the TCJA when a reasonable estimate can’t be made for a specific effect of the tax law change. If this is the case, the registrant continues to apply ASC Topic 740 based on the tax law that was in effect prior to December 22, 2017, before the TCJA was enacted.


If a registrant applies the measurement period approach as outlined in SAB 118, the following disclosures should be provided in the notes to the financial statements:

  • Qualitative disclosures of the income tax effects of the TCJA for which the accounting is incomplete
  • Items reported as provisional amounts
  • Existing current or deferred tax amounts for which the income tax effects of the TCJA haven’t been completed
  • Reasons why the initial accounting is incomplete
  • Additional information that’s needed to be obtained, prepared, or analyzed to complete the accounting requirements under ASC Topic 740
  • The nature and amount of any measurement period adjustments recognized during the reporting period
  • The effect of measurement period adjustments on the effective tax rate
  • When the accounting for the income tax effects of the TCJA has been completed

Form 8-K Considerations

The SEC Staff also issued interpretive guidance in C&DI Question 110.02 clarifying that the re-measurement of deferred tax assets to reflect a change in tax rate or tax laws isn’t considered an impairment under ASC Topic 740 so isn’t required to be disclosed under Item 2.06 of Form 8-K. 

However, if the enactment of the TCJA results in the need for a valuation allowance, registrants can rely on the Instruction to Item 2.06 of Form 8-K and disclose the impairment, or a provisional amount with respect to possible impairment, in its next periodic report.

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For more information on how this new guidance may affect your business, contact your Moss Adams professional. You can also visit our dedicated tax reform page to learn more.

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