AN ANALYSIS OF THE UNREPRESENTED INDUSTRIES IN THE PUSH FOR ACCOUNTING STANDARDS UPDATE NO. 2018-02, INCOME STATEMENT (TOPIC 220)

Open Access
Author:
Andrews, Thomas Alton
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Colin Ashley Knapp, Thesis Supervisor
  • Samuel Burton Bonsall, IV, Honors Advisor
Keywords:
  • Accounting
  • FASB
  • Accounting Standard Update
  • Retained Earnings
  • Reclassifications
  • The Tax Cuts and Jobs Act
  • ASU 2018-02
  • Comment Period
Abstract:
In 2018, the Financial Accounting Standards Board (FASB) released Accounting Standards Update 2018-02 (ASU 2018-02) —Income Statement—Reporting Comprehensive Income (Topic 220). ASU 2018-02 permits qualifying companies to make one-time reclassifications of income tax effects that are stranded in accumulated other comprehensive income from the tax law change to retained earnings. This update was a response to formal complaints submitted by members of the banking and insurance industries, who believed they were adversely affected by current generally accepted accounting principles on handling the unexpected tax rate change. The effects of this reclassification go beyond the two industries who raised the complaints, bringing to light the lack of response by other sectors. The purpose of this thesis is to use the retained earnings effects of accumulated other comprehensive income, permitted by ASU 2018-02, to show the importance of scrutiny of accounting standards from all industries. By quantifying the effects of this accounting change based on industry sectors and adjusting changes to retained earnings based on a percentage of company sales revenue, I expect to identify all of the sectors that were impacted by the accounting update. By comparing this list to the list of sectors that participated in the drafting of this accounting update, I will highlight the sectors that remained silent during FASB’s comment period, a time when company officials are allowed to send in feedback. I will use the changes to retained earnings to defend the position that all companies must actively participate in in the drafting process. Many stakeholders use retained earnings as a benchmark for investment decisions, which is why companies should always be mindful of rule changes that may generate variation.