As we close out 2018, companies are tasked with completing the accounting related to tax reform within the measurement period provided by SAB 118. This will include finalizing tax calculations, as well as valuation allowance assessments, indefinite reinvestment assertions, and assessments of uncertain tax position, among others. In addition, the effect of the complex new international provisions (e.g., GILT, BEAT, FDII) will need to be considered in 2018 effective tax rate calculations. These items, added to what is often times a tight close process, likely means that tax departments will yet again face challenges as they work to complete 2018 year-end financial reports.
PwC’s Tax Accounting Services team has prepared this ‘Top 10 tax accounting considerations for year-end 2018’ publication, which highlights key areas that could have an impact on 2018 year-end financial statements and items on the horizon which may impact 2019 interim reporting.
The ‘Top ten tax accounting considerations for year-end 2018’ provides briefings for your tax accounting practice in the following areas:
Companies may wish to enhance their procedures around the identification and development of disclosures, including considerations for SAB 118, early warning disclosures, outside basis differences and effective tax rate reconciliation.
The recognition and measurement model under ASC 740 has not changed, and is a continual process that requires companies to reassess any unresolved positions at each balance sheet date based on new information.
While accounting for proposed regulations is not new, the volume and complexity of the proposed regulations issued in 2018 may be a challenge to evaluate when faced with limited time. Get our perspective on how to approach.
In light of the changes resulting from tax reform, it is critical for companies to track the outside basis differences of their investments in foreign subsidiaries, regardless of whether they are asserting indefinite reinvestment.
US Tax Reform has added complexity to the branch tax accounting model. The lower US tax rate and separate branch FTC limitation basket could limit the ability to utilize branch FTCs which could impact tax accounting at the parent company.
Companies should consider cumulative income, carryforward periods, tax planning strategies and limitations aspects in their assessments.
Companies that expect to have GILTI inclusions will need to make an accounting policy election with respect to how they will account for GILTI, and this election should be made within the measurement period under SAB 118.
Policy elections should be finalized within the measurement period under SAB 118, and as accounting policy elections they will need to be applied consistently from period to period and disclosed if material to the financial statements.
As companies assess their outside basis difference assertions post-US Tax Reform, currency related effects are garnering more attention than they may have in the past.
Areas to monitor include non-US tax regime changes, Brexit, digital tax, final regulations and Critical Audit Matters, that all may impact your tax practice.
In addition, PwC has provided a summary of SEC comment letter trends for 2018 and a summary of FASB Accounting Standard Updates and IASB developments with respect to accounting for income taxes under IFRS.
US Tax Accounting Market Leader, PwC US
Partner, Tax Accounting, PwC US