Big 4 accounting firms are publishing guidance to help companies understand the tax and accounting consequences of healthcare reform for companies tied into a retiree drug subsidy.

Amid political debate, companies are beginning to file their 8-Ks with the Securities and Exchange Commission announcing writedowns in their deferred tax assets as a result of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act. The legislation changes the tax treatment of federal subsidies paid to companies that provide certain health benefit plans to their retirees, namely a retiree drug subsidy that is equivalent to benefits provided under Medicare Part D plans.

The legislative measures together eliminate a tax deduction related to the drug subsidy causing the subsidy itself to become effectively taxable beginning with the 2013 tax year. That trips accounting and financial reporting requirements for public companies receiving the subsidy, said Richard Paul, a partner with the accounting standards practice at Deloitte.

As a result of the legislation, the expected future tax deduction will be reduced by an amount equal to the subsidy, said Paul. That means companies must adjust their deferred tax assets accordingly, which results in a reduction in those deferred tax assets recorded through other comprehensive income.

Deloitte, Pricewaterhouse Coopers, and KPMG have published alerts explaining the intricacies of the tax provisions and their intersection with accounting standards, most notably Accounting Standards Codification 740 Income Taxes, which addresses how to account for a change in a benefit obligation and the related tax implications.

Paul said companies perform actuarial calculations to determine the expected future obligation that must be reported in financial statements. As such, the amounts companies might have recorded in deferred tax assets that must now be written down can vary dramatically. Credit Suisse estimated companies may ultimately record a combined writedown of as much as $4.5 billion. Towers Watson says as many as 3,500 companies avail themselves of the drug subsidy and could write down as much as $14 billion.

The accounting consequences have irked supporters of the healthcare reform package, some of whom believed companies were announcing writedowns as part of a political agenda. A House sub-committee on oversight and investigations is holding a hearing on April 21 and invited some of the earliest 8-K filers, namely AT&T, Deere & Co., and Caterpillar to testify.

Lynn Turner, a former chief accountant for the SEC and a forensic accountant with consulting firm LECG, said companies taking writedowns are following the law. “Regardless of whether one is for or against healthcare reform, one should be for transparency and good disclosures to the owners of the companies, which is exactly what these companies are doing,” he said.