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The New U.S. Tax Law's Impact on XBRL Tagging

Lou Rohman, vice president of XBRL Services, Merrill Corporation | February 28, 2018

One may not think that the recently passed changes to U.S. tax law would have much impact on XBRL tagging, but upon further review, there are some notable impacts.

The Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017, has led to updates and guidance to U.S. accounting standards. Specifically, the FASB issued an Accounting Standards Update (ASU 2018-02) and the SEC issued Staff Accounting Bulletin 118 (SAB 118).

These updates create corresponding changes to the US GAAP Taxonomy. Both ASU 2018-02 and SAB 118 give rise to additions of new tags and related changes to the taxonomy.

Ideally, an XBRL taxonomy, such as the US GAAP Taxonomy or the IFRS Taxonomy, would never need to be changed. However, as long as there are changes to the accounting standards, there will always be corresponding changes to the related taxonomy.

New XBRL Tags Are Needed

The primary updates and guidance to the accounting standards due to the tax law consist of:

  1. ASU 2018-02 (Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI)) requires a reclassification on the balance sheet from AOCI to Retained Earnings for changes from the newly enacted corporate tax rate (reducing from 35% to 21%). As part of the required disclosures during the transition, the company must disclose the effect of the change on the affected financial statement line items.

    There currently is no tag in the US GAAP Taxonomy appropriate for this disclosure. Therefore, a new tag will need to be added. The proposed tag would be labeled “Tax Cuts and Jobs Act, Reclassification from AOCI to Retained Earnings, Tax Effect”.

  2. The SEC’s SAB 118 (Income Tax Accounting Implications of the Tax Cuts and Jobs Act) gives guidance regarding the application of current accounting standards for income taxes (ASC Topic 740) in the reporting period for which the Tax Cuts and Jobs Act was signed into law (December 2017). SAB 118 addresses the fact that some companies won’t have time to properly measure and finalize the income tax effects of the Act prior to issuing the financial statements for the reporting period in which the Act was enacted. SAB 118 gives guidance what to do if that occurs.

Due to this change, there will be several tags that need to be added to the taxonomy to cover these new disclosures, including the provisional amounts and the current or deferred tax amounts for which the income tax effects of the Act haven’t been completed.

The above two items are basic examples of necessary changes to the US GAAP Taxonomy for the tax law change. There are more detailed taxonomy changes resulting from other specific items in the Act. In February 2018 the FASB staff issued the relevant GAAP Taxonomy Improvements and Release Notes which include the detailed changes.

These taxonomy changes are scheduled for inclusion in the 2019 US GAAP Taxonomy.

Proper Tagging Is Essential

Understanding these taxonomy changes is essential to preparing XBRL properly and ensuring an XBRL filing accurately communicates the disclosures to the SEC and the public in a tagged format.

SEC filers will certainly be combing through the new accounting standard updates to ensure they book the proper accounting entries and disclose the required items for the new tax law changes. But they also must keep abreast of the taxonomy changes so they can properly tag the new disclosures and not mislead readers of XBRL-tagged financials. Proper XBRL tagging is a key part of properly complying with this accounting standards update.

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