United States

Tax reform: Effects on deferred tax assets and liabilities

FINANCIAL REPORTING INSIGHTS  | 

We expect tax reform will be a reality before the end of 2017 (or it may already be a reality depending on when this article is read). The timing of tax reform puts some additional stress on the year-end financial reporting process for certain entities with calendar year ends.

A key element of the tax reform that we expect to be a reality in 2017 is a reduced tax rate for corporate entities that takes effect in 2018. This reduced tax rate should be used to measure a calendar year-end corporation’s: (a) deferred tax assets on deductible temporary differences and operating loss carryforwards as of December 31, 2017, and (b) deferred tax liabilities on taxable temporary differences as of December 31, 2017. Any changes in the deferred tax assets and liabilities resulting from the reduced corporate tax rate should be reflected in the corporation’s income from continuing operations for 2017, regardless of when the timing difference is scheduled to reverse.

An entity should ensure it has appropriate internal controls over incorporating the effects of tax reform in its year-end financial reporting process.