Nonprofits Can Apply SEC Guidance Related to Tax Reform – FASB Q&A

The Financial Accounting Standards Board (FASB) recently posted a Q&A stating the FASB staff would not object to nonprofits applying guidance from the Securities and Exchange Commission (SEC) on the application of Topic 740, Income Taxes, in the reporting period that includes the date on which the new tax law was signed.

The SEC staff issues statements expressing a view on applying topics in the FASB Accounting Standards Codification (ASC) and/or disclosure requirements through staff accounting bulletins (SABs). These statements represent the practices and interpretations followed by the SEC staff. Historically even though the SEC staff’s views and interpretations aren’t directly applicable, nonprofits have chosen to apply the guidance in the SABs.
 
When the new tax law was signed, the SEC staff released SAB 118 for applying Topic 740, Income Taxes, as it relates to tax reform. SAB 118 outlines the approach companies may take if they determine that the necessary information is not available (in reasonable detail) to evaluate, compute, and prepare accounting entries to recognize the effect(s) of the new tax law by the time the financial statements are required to be filed. Companies may use this approach when the timely determination of some or all of the income tax effect(s) from the tax law is incomplete by the due date of the financial statements. SAB 118 also prescribes disclosures that reporting entities must provide in these circumstances. 

 

Main Provisions of the FASB Q&A

The FASB staff would not object to nonprofits applying SAB 118, which the staff believes complies with GAAP. This view is based upon the historical application of SABs by nonprofits. 
 
The FASB staff also believes that a nonprofit opting to apply SAB 118 would need to do so in its entirety, including the disclosure requirements. Such reporting entity should also disclose its accounting policy of applying SAB 118, required by ASC paragraphs 235-10-50-1 through 50-3.^[1]

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