Tax Accounting Challenges Loom Large for Many Filers This Year

February 19, 2018

Form 10-K filers must comply with public company accounting standards, but that is easier said than done these days. In particular, the new GAAP standard on revenue recognition (see this previous Ticker report) and the Tax Cuts and Jobs Act (see this previous Ticker report) are complicating the financial reporting landscape in 2018.

The recent experience of General Electric Company (GE) highlights challenges with revenue recognition. Despite GE’s efforts at accounting simplification (see this previous Ticker report), accounting for its customer contracts poses reporting challenges, as this recent Bloomberg article shows. In a January 24 conference call discussed in a recent Morningstar article, GE’s Chief Financial Officer Jamie Miller acknowledged that the SEC is currently investigating GE’s revenue recognition and controls for long-term service agreements. Miller added: “We are co-operating fully with the investigation, which is in very early stages.” Despite the setback, GE declared a $0.12 per share dividend on February 9.

Revenue recognition is not the only accounting challenge facing public companies this year. The Tax Cuts and Jobs Act has complicated the accounting picture. On January 22, one month after the tax bill was signed into law, the Financial Accounting Standards Board (FASB) issued staff Q&A documents on repatriation, alternative minimum tax credits, global intangible law-tax income and payments made to foreign affiliates considered to be base erosion. And on February 7, the FASB made a tentative decision on “reclassification of certain tax effects from accumulated other comprehensive income.” And the beat goes on.

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