D.3 MD&A — General
Before the enactment of tax law proposals or changes to existing tax rules, SEC
registrants should consider whether the potential changes represent an uncertainty that
management reasonably expects could have a material effect on the results of operations,
financial position, liquidity, or capital resources. If so, registrants should consider
disclosing information about the scope and nature of any potential material effects of
the changes.
After the enactment of a new tax law, registrants should consider disclosing, when
material, the anticipated current and future impact of the law on their results of
operations, financial position, liquidity, and capital resources. In addition,
registrants should consider disclosures in the critical accounting estimates section of
MD&A to the extent that the changes could materially affect existing assumptions
used in estimating tax-related balances.
The SEC staff expects registrants to provide early-warning disclosures to help users
understand various risks and how these risks potentially affect the financial
statements. Examples of such risks include situations in which (1) the registrant may
have to repatriate foreign earnings to meet current liquidity demands, resulting in a
tax payment that may not be accrued for; (2) the historical ETR is not sustainable and
may change materially; (3) the valuation allowance on net DTAs may change materially;
and (4) tax positions taken during the preparation of returns may ultimately not be
sustained. Early-warning disclosures give investors insight into the underlying
assumptions made by management and conditions and risks facing an entity before a
material change or decline in performance is reported.