Financial Statement Impact of Trump’s Tax Reform

Accounting Standards Concept (“ASC”) 740-10-45-15 requires that the effect of a change in tax law or rates to be recognized in the period that includes the enactment date. President Trump’s tax reform proposals, which were outlined in his “The Biggest Individual and Business Tax Cut in American History” memorandum, suggest significant changes to tax legislatives. Some of them are expected to be signed into law before the end of 2017. The financial statement impact of these provision must be reflected in enterprises’ annual financial statement in the period they are enacted, irrespective of the effective date. In other words, if his proposals become law in 2017, the related tax impact must be reflected in the enterprises’ 2017 financial statement. For interim financial statement issuers, the financial statement impact of the tax law change needs to be reflected in the quarter these changes are enacted. In order to manage the financial statement reporting in a timely manner, enterprises need to stay up-to-date on their tax legislative development and implement plans to reflect such changes in their financial statements.

We will discuss some of Trump’s tax proposals and their potential financial statement impact, along with recommendations on action items enterprises should consider taking in advance:

Mandatory Repatriation
Under present law, the general rule on the U.S. tax on foreign earnings of foreign corporate subsidiaries is that the tax is deferred until it is distributed back to the U.S. shareholders. During Trump’s campaign, he introduced a special corporate tax repatriation holiday rate of 10% to bring the money stashed offshore back into the U.S. The blueprint contains a similar proposal which provides a mandatory repatriation tax at 8.75% for cash and 3.5% for non-cash assets. If enacted, multinational companies with foreign subsidiaries must account for deferred and current tax liabilities associated with unremitted foreign earnings.

The repatriation tax will be assessed on previously untaxed earnings and profits (“E&P”) of foreign subsidiaries. E&P is the measure of a corporation’s economic ability to pay dividends to its shareholders and is a basis to determine the U.S. federal income tax. Internal Revenue Code (“IRC”) §964 and the regulations thereunder provide the procedures for foreign corporations to calculate E&P, and the computation is based on a multi-step approach; including conversion of foreign subsidiaries’ books to U.S. GAAP, application of U.S. tax rules to re-determine the taxable income, and application of E&P adjustments provided under IRC section 312 with accompanying regulations. This exercise needs to be done year by year since inception, and may require substantial resources and hours. Additionally, enterprises must account for foreign withholding taxes and potential benefit associated with foreign tax credits.

Many enterprises have taken an indefinite reinvestment assertion under ASC 740, also known as the APB 23 exception, supporting a position not to provide tax provision for foreign subsidiaries’ earnings. Under this assertion, enterprises can forgo recording a deferred tax liability associated with the unremitted earnings of foreign subsidiaries as management has the intent and ability to indefinitely reinvest the profits or otherwise indefinitely postpone taxation in U.S. However, if the remittance becomes mandatory, enterprises must quantify and record deferred tax impact of remittance of foreign earnings, foreign withholding taxes and potential benefit associated with the ability to utilize foreign tax credits.

Tax Rate Reduction
President Trump proposed to introduce a single corporate federal tax rate of 15%. The proposed rate in the House Republican’s tax reform blueprint mirrors Trump’s rate reduction proposal and suggests a single corporate tax rate of 20%.

As stated above, ASC 740 requires that the tax effects of changes in tax laws or rates to be recognized in the period in which the law is enacted. Deferred tax liabilities and assets shall be adjusted for the effect of a change in tax rates when enacted. When deferred tax accounts are adjusted as required by ASC 740-10-35-4 for the effect of a change in tax rates, the effect shall be included in income from continuing operations for the period that includes the enactment date.

Unless the rate change applies retroactively, the enactment date differs from the effective date resulting in a delayed effective date or phase-in approach. This adds complexity as some of deferred tax assets and liabilities scheduled to reverse during the transition period would be measured at a rate different from the new rate. A detail analysis of timing of reversal of temporary differences must be considered in measuring deferred tax assets and liabilities.

Territorial Tax System
In his memorandum, President Trump calls for a need to fundamentally change the U.S. tax system to a territorial regime, in which only US-related profits are taxed. Under the current tax system, U.S. enterprises are subject to tax on worldwide income – earnings of foreign subsidiaries are subject to taxation when they are repatriated or deemed remitted back to U.S. However, under the territorial tax system, U.S.-based multinational corporations pay U.S. tax only on their domestic income. Based on the House Republican’s tax reform blueprint, the foreign earnings of U.S. businesses will be entitled to a 100-percent exemption for dividends from foreign subsidiaries.

At this point, there is not enough detail available to assess the potential financial statement impact. However, such change will dramatically reshape the current outbound international taxation, removing Subpart F regime and how enterprises are taxed on its foreign earnings. The reform will also get rid of many tax incentives, including domestic production activity deductions.

Recommendation: Enterprises should continually monitor development of tax legislatives, assess their implication to financial statement, and plan implementation steps ahead to manage the financial statement reporting in a timely manner.

President Trump on April 26th unveiled skeletal outline of a tax package. A single-page statement with bullet points was headed “2017 Tax Reforms for Economic Growth and American Jobs” and “The Biggest Individual And Business Tax Cut In American History”. The outline mirrors the provisions contained in the House Republican’s Blueprint issued in March, and the reform is expected to be finalized by end of 2017.

The outline explains that the tax reforms will i) grow the economy and create millions of jobs, ii) simplify our burdensome tax code, iii) provide tax relief to American families – especially middle-income families, and iv) lower the business tax rate from one of the highest in the world to one of the lowest.

For Individual:

For individuals, the proposal would replace the current 7 tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) to 3 tax brackets (10%, 25%, and 35%). The outline nor the administration has not yet say at what income levels those rates would apply.

The proposal would double the standard deduction, and provide tax relief for families with child and dependent care expenses. However, the document does not say how that might differ from the current child tax credit.

The document states that the reform would simplify the current legislation by i) eliminating targeted tax breaks that mainly benefit the wealthiest taxpayers, ii) protecting the home ownership and charitable gift tax deductions, iii) repealing the Alternative Minimum Tax, and iv) repealing the death tax (estate tax). It also states that the reform would repeal the Obamacare tax penalty that “hits small business and investment income”.

For Business:

For businesses, other than lowering the top tax rate to 15%, the proposal would call for a territorial tax system, which generally would exclude from taxation foreign earned income.

It also would impose a “one-time tax on trillions of dollars held overseas” and on which tax is deferred. This one-time tax can be the same as, or consistent with, a deemed repatriation tax that Trump has previously proposed at a 10% rate.

It is interesting that the proposal did not mention any border-adjustment, or destination-based tax. This has been a key feature of the blueprint for tax reform. This might be because this feature has been criticized as problematic for U.S. importers and others and likely to be challenged internationally under World Trade Organization rules.

Treasury Secretary Steven Mnuchin said that it is the administration’s intention to “move as fast as [they] can and get this done this year”. Congressional leaders have expressed concerns about the proposal as it promises to give tax cuts without specifically identifying revenue offsets. During the presidential campaign, Trump said that the plan would be revenue-neutral, and Mnuchin confirmed that the proposal would “pay for itself, with economic growth and with reduction of different deductions and closing loopholes”.

As we mentioned earlier this year, with Republicans’ domination over the House and Senate, significant tax reform reflecting what Trump promised during the campaign is expected. Taxpayers are recommended to continually monitor the tax legislation process and plan in advance to minimize adverse impact of the tax reform.

Please see our coverage of Trump’s Tax Reform:

http://www.kyjcpa.com/news-updates/blueprint-for-tax-reform/

http://www.kyjcpa.com/news-updates/trumps-tax-policy/

작년 미대선에서는 트럼프가 약 $1 billion의 손실을 보고하여 약 20년간 세금을 납부하지 않았다고 하여 떠들썩 했었던 일이 있었다. 이와 같이, 미국 법인세에는 Net Operating Loss (NOL) 이라는 개념이 있다. 이월결손금공제라고도 불리는 NOL은 사업연도 중에 손실이 발생한 것에 대해서 이를 다음해로 넘겨서 차감해 줄 수 있는것을 말한다. 즉, 2015년도에 발생한 결손금 $1,000을 2016년도에 발생한 이익 $2,000에서 차감할 수 있게 하여, 2016년도에는 이익 $1,000에 대해서만 세금을 낼 수 있도록 하는 식이다.

이러한 식의 NOL의 사용에도 물론 제한이 있다. IRC Section 382(b)에 따르면 법인의 지배구조가 상당히 바뀌었을 시에는 – 즉 50% 이상의 변동이 있을 시에는 – 이러한 이월결산을 사용하는 데에 제한을 두게 된다. 하지만, 이러한 연방정부의 규정이 캘리포니아의 세금을 계산할 때에는 이러한 제한이 캘리포니아로 이익을 할당하기 전에 적용되는지 혹은 후에 적용되는지에 대해서 불분명했었다. 이에, 이러한 불분명성을 명확히 하기 위해서 캘리포니아에서는 가이드를 내 놓았다. (Technical Advice Memorandum 2017-03 혹은 TAM 2017-03).

TAM 2017-03에 따르면, 382(b) 제약은 캘리포니아로 이익을 할당하기 전에 적용이 되게 된다. (built-in gains나 built-in loss에 대해서는 캘리포니아로 이익을 할당한 후에 적용되게 하지만, 이에 대해서는 여기서 언급하지 않기로 한다.) 캘리포니아를 제외한 많은 주는 이러한 382(b)에 대해서 다른 해석을 하며 이익을 각 주로 할당한 후에 382(b)를 적용한다.

이해를 돕기위해서 아래의 예시를 준비했다.

법인 X는 $10,000,000의 NOL이 있으며 382(b)가 적용될 만한 지배구조의 변화가 있었다. 이로 인해서 생긴 382(b)제약이 연간 $300,000이라고 가정하자. 법인X는 당 사업연도에 과세소득이 $1,000,000이었으며 이 중 15%가 캘리포니아로 할당된다. TAM 2017-3에 따라 법인 X의 캘리포니아 과세소득을 계산하면 다음과 같다.

TAM 2017-03이 발표되기 전, 일반적으로 회계법인들은 세무보고를 할때에 캘리포니아로 과세소득을 할당 한 후에 382를 적용하였으며, 이에 대한 결과는 아래에서도 보이듯이 위의 계산과는 매우 다르다.

여러주에 세무보고를 하는 법인들 중 특히 캘리포니아에서 NOL을 사용하는 곳들은 이번 TAM에 특히 신경을 써야 캘리포니아 과세당국과 불필요한 마찰을 피할 수 있을 것으로 보인다.

TAM에 2017-03에 대한 내용은 아래의 링크에서 확인해 볼 수 있다.

https://www.ftb.ca.gov/law/Technical_Advice_Memorandums/2017/03.pdf

Application of a 382 Limitation for California Tax Purposes

As you may know, IRC section 382(b) provides pre-ownership change tax attribute usage limitation when a corporation experiences of an ownership change as defined under IRC section 382(g).  It wasn’t clear until now whether the limitation is applied on a pre-apportionment basis or a post-apportionment basis for California tax purposes.  California issued Technical Advice Memorandum 2017-03 (“TAM 2017-03”) clarifying how the limitation should be applied.

According to the TAM 2017-03, the 382(b) limitation is applied on a pre-apportionment basis.  However, annual limitation adjustment due to RBIGS and RBILS (recognized built-in gains / recognized built-in loss) under IRC section 382(h) would be determined on a post-apportionment basis. (I will omit the discussion of RBIGS and RBILS).

Note that many states have differing interpretations and applies the limitation on a post-apportionment basis.

Here is an illustration:

The Company X has $10,000,000 net operating loss and experienced a 382 ownership change.  Say the annual limitation is determined to be $300,000.   The Company X has pre-apportioned California taxable income of $1,000,000.  Say the California apportionment percentage is 15%.  Based on TAM 2017-03, the Company X’s California taxable income is computed as follow:

Prior to the issuance of the TAM, many tax practitioners applied the annual limitation on a post-apportionment basis which results in a very different outcome, as illustrated below:

Please refer to the link below for further discussion.

https://www.ftb.ca.gov/law/Technical_Advice_Memorandums/2017/03.pdf

Elimination of Water’s-Edge Election

캘리포니아주는 2017 년 2 월 ‘Water's Edge Election’ 조항을 철회하는 법안(상원 법안 567)을 발의하였다. ‘Water’s Edge Election’ 은 다국적으로 자회사 및 계열사를 운영하는 법인 납세자들에게 캘리포니아주의 세금과 준수의 복잡성을 최소화하기 위해 사용되어 왔지만, 이번 법안이 통과 될 경우 과세연도기준 2017 년 1 월 1 일 이후부터 ’Water’s-Edge Election’를 채택할 수 없게된다. 그러나, 일반적으로 ’Water’s-Edge’는 84 개월 동안 유효하므로, 이러한 절차를 기존에 채택한 법인 납세자들은2022 년 12 월 31 일까지 ‘Water’s-Edge’의 기준을 사용하여 캘리포니아에 세금보고 할 수 있을것으로 전망된다.

사실 캘리포니아주는 전 세계의 소득을 통합하여 과세하는 몇 안되는 주 중 하나인데, 일반적으로 동일한 지배그룹 (controlled group) 구성원들의 단일 사업이 캘리포니아주 내외로 진행되는 경우에는 통합된 세금보고서를 제출하도록 되어있다. 캘리포니아주에서 기업 집단은 일련의 법적과정에서 발달되고 채택되어 온 세 가지 기준 (the three unities, contribution or dependency, and flow of value tests) 중 어느 하나라도 충족이 되면 단일 사업을 수행하는 것으로 간주하게 되는데, 위에서 언급 한 세 가지 기준은 본 논의의 중점에서 벗어나므로 생략하기로 한다. 한편, 위에서 언급된 ‘Controlled group’은 일반적으로 주식의 50 % 이상, 또는 투표권의 50 % 이상이 직간접적으로 연결되어 있는 기업들의 경우를 말한다. 이처럼 통합된 소득에 대해 세금을 부과할때에는 법인 및 지리적 경계를 따지기보다는 경제 단위에 중점을 두게되며, 과세당국은 해외 법인을 포함한 단일 사업에 속한 모든 기업의 소득이 합하여진 다국적 통합 소득을 일정한 규칙에 따라 각 주의 소득으로 할당하게 된다.

캘리포니아 주에서는 1986년도에 납세자들에게 ‘Water’s-edge’를 채택할 수 있는 법이 제정되었는데, 이 법안은 캘리포니아주에서 발생한 수입을 결정할때, 단일 사업으로 발생한 다국적 수익을 결합하여 보고하는 캘리포니아주의 조세방식을 제한하기위한 것이었다. 납세자들은 ‘Water’s-edge’을 채택함으로써, 통합세금보고의 범위가 오직 미국 정부가 세금을 부과한 기업에만 적용되는 조세 제도를 선택하였다. (국내 기업, ECI를 보유한 외국 기업 또는 80/20 규칙을 준수하는 외국 기업). 다시 말하여, 이 법안으로 인해 특정한 외국 그룹의 기업들은 캘리포니아의 통합세금보고로부터 제외가 됬다. 하지만 이번 상원 법안 567이 통과 되면, ‘Water’s-Edge’ 조항이 없어지게 되면서 다국적 기업의 경우, 자회사와 게열사에게 조세의 국경선이 전 세계로 확대가 될 전망이다. *더 자세한 내용은 아래링크를 참조하시면 됩니다.

http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB567

To see English version of this article, go to: http://www.kyjcpa.com/news-updates/elimination-of-waters-edge-election/

Elimination of Water’s-Edge Election

California proposed a bill (Senate Bill 567) in February 2017 which includes a provision to remove its Water’s-Edge Election.  Many corporate taxpayers with multinational operations through subsidiaries and affiliates have been minimizing California tax liability and compliance complexities by utilizing the water’s-edge election.  The bill will remove this election for taxable years beginning on or after January 1, 2017, if enacted.  Generally, the election is good for 84 months, therefore corporate taxpayers with the election in place already would be able to report its income to California on the water’s-edge base until December 31, 2022.

California is one of the few states requiring worldwide combined unitary reporting.  When a group of corporations conducts a unitary business, members of the commonly controlled group are generally required to file a combined report if the unitary activities are carried on within and without California.

In California, a group of corporations are deemed to be conducting a unitary business if the group meets any of the judicially developed and accepted three tests (the three unities, contribution or dependency, and flow of value tests).  We omitted the discussion of the above-mentioned three tests as they are beyond the scope of our discussion.  And, in general term, a commonly controlled group is a group of corporations connected through 50% or more of stock ownership or 50% or more of voting power, directly or constructively.

The unitary or combined approach ignores legal entities and geographical boundaries and focuses on the economic unit.  In other words, under the California tax system (so called the “worldwide unitary combined reporting method”), the state applies its apportionment formula to the combined income of all corporations in a unitary group, including foreign corporate entities.

In 1986, legislation was enacted in California to permit a water’s-edge election to be made by certain taxpayers.  The water’s-edge legislation was intended primarily to restrict California’s application of the worldwide combined reporting method of determining income from California sources.  By electing water’s-edge, a taxpayer elects into a system of taxation, under which the scope of combined reporting is limited to certain corporations whose income is subjected to tax by the United States government (including domestic corporations, foreign corporations with ECI, or foreign corporations meeting the 80/20 rule).  In other words, certain foreign group members would be excluded from the combined California report.

However, Senate Bill 567, if enacted, would eliminate the ability to make the water’s-edge election and the state’s boundaries for taxation would be extended to worldwide for corporate taxpayers with multinational operations through affiliates and subsidiaries.

Please refer to the link below for additional information.

http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB567

To see Korean version of this article, go to: http://www.kyjcpa.com/news-updates/elimination-of-waters-edge-election-korean/

Proposal to Repeal and Replace Obama Care

House Republican introduced proposal to repeal and replace the Patient Protect and Affordable Care Act (commonly known as “Obama Care”) Monday evening and the proposal is scheduled to be routed to the House Ways and Means Committee for mark up.  Some of the significant changes included in the proposal is summarized below:

• Removal of penalties under IRC section 5000A for failure to have health insurance effective December 31, 2015.

• Removal of penalties under IRC section 4980H for failure to provide minimum essential coverage to employees by large employers effective December 31, 2015.

• Removal of current premium tax credit and introduction of a new Age-Based health insurance coverage credit. The credit amount ranges from $2,000 to $4,000 per year and per person (with a limitation of $14,000 for a household with five or more members).  The credit would be subject to phase-out provision for taxpayers with modified adjusted gross income over $75,000 ($150,000 for married filing joint returns).

• Removal of the 3.8% net investment income tax and the 0.9% Medicaid surtax effective December 31, 2017.

• Removal of the section 162(m)(6) $500,000 compensation deduction limitation for health insurance providers.

• Removal of the medical device excise tax effective December 31, 2017.

• Revert from 10% to 7.5% income threshold for itemized deduction for medical expenses.

As the Republicans control both houses of Congress, many of the provisions included in the proposal is expected to be enacted.

Please refer to the link below for additional information.

http://healthaffairs.org/blog/2017/03/07/examining-the-house-republican-aca-repeal-and-replace-legislation/

리스 회계기준 업데이트 공표

미국회계기준(US GAAP)과 국제회계기준(IFRS)이 새로운 리스 기준을 도입함에 따라, 회사들의 재무제표에 변화가 발생하게 된다. 미국회계기준 업데이트 “ASU 2016-02”에 의하면 새로운 기준은 상장기업들의 경우에는  2018년 12월 15일 이후부터이며 적용되며, 그 외의 사업체들은 2019년 12월 15일 이후부터 적용되어진다. 반면, 국제회계기준 IFRS 16에 따르면 상장회사와 비상장회사 모두 2019년 1월 1일 이후에 시작하는 회계연도부터 적용된다. 미국회계기준과 국제회계기준 모두 조기적용이 가능하다.

국제회계기준에 따라 재무제표를 발행하는 외국기업들을 모회사로 두고 있는 미국기업의 경우, 본사와 같은 회계기준을 사용하여야 하므로, 현지에 있는 경영진들은 이행준비에 관심을 가지고 본사와 함께 시행시기 및 절차에 대하여 미리 조율해야 할 것이다. 본사가 2019년 1월 1일 이후부터 관련 회계기준을 사용하게 된다면, 마찬가지로 미국기업도 이에 따라서 변경된 회계기준을 사용하여 비교 재무제표를 준비하여야 한다. 즉, 본사에서 2019년 1분기 재무제표를 준비하기 위해서 본사와 본사에 연결되는 자회사들은 새로운 회계기준을 사용하여 2019년1분기와 2018년 1분기 재무제표를 준비하여야 한다. 이를 위해서 2019년도 1분기가 되기 이전에 새로운 회계기준에 대한 2018년도 전반적인 영향에 대해 분석이 되어야 한다.

이번 리스회계개정안은 국제회계기준위원회(IAS)와 미국회계기준위원회(FASB)가 함께 공동으로 시작하였으며, 미국회계기준 업데이트 "ASU 2016-02"의 많은 내용들이 "IFRS 16"과 일치한다. 이 두가지 기준들의 주요한 차이점은 미국회계기준위원회는 ‘Dual model lease classification approach’를 적용한 반면, 국제회계기준위원회는 ‘Single model approach’를 적용한 것이다.

이번에 개정되는 회계기준에 대비하여 기업들은 기존 임대계약서를 검토하여 임대를 통한 자산과 부채의 가치를 정확히 산정한 후, 이로인해 미치는 회계상에서의 영향 등을 미리 점검해보아야 한다. 개정된 리스회계기준은 가치산정으로 변경된 임대자산과 부채를 대차대조표(Balance sheet)에 기재하도록 요구하기 때문에, 많은 기업들이 이번에 개정된 기준을 따르게되면 일반적인 회계 및 재무보고뿐 아니라 내부 감사, IT, 세금, 예산, 교육, 계약, 규정, 계약관리 및 보다 넓은 분야에서 광범위하게 영향을 받게될것이다.

또한 이번 개정안은 이연법인세에도 큰 영향을 주게 되므로, 효과적이고 시기적절한 계획을 세우기위하여 신속한 평가가 이루어 져야 한다.

To see English version of this article, go to: http://www.kyjcpa.com/news-updates/lease-accounting/

Lease Accounting

Both US GAAP and IFRS substantially changed how leases are accounted for, and the new standard will affect all companies that lease assets such as real estate, manufacturing equipment, and vehicles.  The effective date of the new standard under the US GAAP is period beginning after December 15, 2018 for public business entities (and period beginning after December 15, 2019 for all other entities).  An early adoption is permitted.  The effective date under the IFRS is period beginning on or after January 1, 2019.  An early adoption is also permitted.

US subsidiaries of foreign companies issuing financial statement under IFRS MUST implement the new standard concurrently with their parent companies.  Accordingly, the local management should coordinate with the parent companies regarding the implementation process and timing.  Entities are required to adopt the new standard using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption (i.e. require a restatement of comparatives with the cumulative impact adjusting the beginning of the retained earnings).

The leases project began as a joint project with the IASB, and many of the requirements in Topic 842 of US GAAP are the same as the requirements in IFRS 16.  A key difference between the two standards is that FABS adopted dual model lease classification approach while the IASB adopted a single model approach.

The implementation requires review of all existing lease contracts, classification, measurement of liabilities and assets, and the adoption impact needs to be remeasured.  The implementation will be time consuming and requires advance plan.  The new lease accounting standard requires organizations to recognize most leases on-balance sheet, which increases their reported assets and liabilities. For many companies, implementation of the new leasing standard will have broad organizational impacts beyond general accounting and financial reporting, including areas such as treasury, internal audit, IT, tax, budgeting, training, regulatory, contract management, and forecasting.

Note that the new standard will also have a significant impact to deferred tax position.  A prompt assessment should be performed now to develop an efficient and timely implementation plan.

KYJ LLP advisors are ready to assist you with lease accounting change and adoption of the standard.

Click here to view full ASU 2016-02 Topic 842 from FASB or go to FASB website to view the full publication.

To see Korean version of this article, go to: http://www.kyjcpa.com/news-updates/lease-accounting-korean/

Measurement-Period Adjustment

FASB substantially simplified the accounting for measurement-period adjustment relates to a business combination.  The amendment was issued back in September 2015 (See ASU No. 2015-16) but not many people paid much attention to it because of its effective date not being immediate.  The effective date for public entities is periods beginning after December 15, 2016.  For all other entities, the effective date is periods beginning after December 15, 2017.  However, early adoption is permitted.

Here is a quick overview of the amendment.

In the year of a business acquisition, the acquirer must identify and measure all aspects of business combination (e.g. working capital, intangibles, goodwill, contingencies, uncertain tax positions, etc.).  More often than not, the acquire must reflect certain provisional amounts based on information available at the acquisition date and additional information become available during the “measurement-period” which may result in adjustments to assets and liabilities identified and measured initially.   The measurement-period is period of time during which additional acquisition accounting information becomes available subsequent to the date of acquisition but exceeding one year from the date of the acquisition.

Under the current rule, the measurement-period adjustments must be recognized retrospectively.  In other words, the acquirer must revise comparative information on the income statement and balance sheet as if the information resulting in adjustments were available at the acquisition date.  This involves restating comparative balance sheet and P&L items.

Under the new rule, the measurement-period adjustments must be recognized prospectively.  In other words, the acquirer must recognize measurement-period adjustments in the periods in which the adjustment is identified and measured.

Please note that material adjustments identified post measurement-period (i.e. adjustments determined beyond the one year from the acquisition date) may result in a RESTATEMENT if they are not resulting from changes in facts and circumstances.

Click here to view full ASU 2015-16 from FASB or go to FASB website to view the full publication.