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Court Decision May Scramble Accountants

Tammy Whitehouse | June 26, 2012

Depending on the pending Supreme Court decision on health care reform, public companies should be preparing to scramble accounting and financial reporting staff to unravel some big tax consequences hung up on the balance sheet.

The Supreme Court is soon expected to rule on the constitutionality of the Affordable Care Act, putting accounting and financial reporting staff on alert should they need to push through period-end adjustments to reflect the tax consequences, according to an alert from Ernst & Young. When the law was adopted, many companies took significant charges to write off deferred tax assets related to a change in tax treatment for Medicare Part D coverage. If the Supreme Court overturns all or parts of the Act, companies may need to reverse those charges by recording equivalent tax benefits in the period the Court makes its ruling, according to E&Y.

In a separate alert, PwC warns that a court decision before June 30 would need to be reflected in second-quarter results for calendar-year companies. However, if a decision falls after June 30, companies will need to consider Accounting Standards Codification 885, Subsequent Events, to determine if they would need to include disclosures in their second-quarter reports.

Beyond the tax effects of Medicare Part D coverage, the Big 4 firms also warn companies to think about the annual fee imposed on pharmaceutical manufacturers, the implications for government pricing if the Medicaid expansion is rolled back, and the effect on retiree medical plans if changes to those plans were reported under postretirement plan requirements.

The Supreme Court ruling is expected on Thursday.