The One Big Beautiful Bill Act: What It Means for Financial Reporting in Manufacturing and Distribution

The “One Big Beautiful Bill” Act (OBBBA), signed into law on July 4, 2025, is poised to significantly impact the U.S. manufacturing and distribution industry. While headlines have focused on its tax incentives and economic stimulus, the bill also carries significant implications for financial reporting and auditing -- areas that are critical for maintaining investor confidence and regulatory compliance.  

The OBBBA renews provisions of the Tax Cuts and Jobs Act (TCJA) and revives other provisions designed to encourage capital investment, including 100% immediate expensing for equipment and domestic research and development (R&D) expenses and temporary full expensing for new qualified factory construction. These incentives could drive a surge in capital expenditures across the sector. From a financial reporting perspective, this means companies must be diligent in how they recognize, classify and depreciate new assets. 

Under U.S. GAAP (ASC 360), assets must be evaluated for useful life, residual value and potential impairment. The increase in asset activity also heightens the importance of internal controls around procurement, capitalization policies and fixed asset tracking. 

Key Takeaways: 

• Existing control frameworks should be continuously reviewed, and organizations should take a proactive approach in periods of rapid growth. 
• Companies increasing their R&D investments should revisit their disclosure practices, maintain transparency around accounting policies and estimates, and consider the strategic rationale behind these expenditures. 
• The OBBBA offers various incentives for U.S. M&D companies but demands strong financial reporting and audit readiness. Transparent financial reporting is essential to maintain compliance and build trust with investors, lenders, and business partners.  

R&D Accounting: Bridging the Book-Tax Divide 

Starting in 2022, the TCJA mandated capitalization and amortization of domestic R&D expenditures over five years for domestic R&D and 15 years for foreign R&D. The bill revives immediate tax expensing of domestic R&D expenditures under IRC Sec. 174A. This will create temporary book-tax differences, leading to potential deferred tax assets (DTA) or liabilities (DTL) that must be carefully tracked and disclosed under ASC 740. GAAP accounting under ASC 730 generally requires these costs to be expensed as incurred, unless specific capitalization criteria are met. With the change in restoring the immediate expensing for tax, companies with average annual gross receipts under $31 million may retroactively apply these R&D new rules to tax years beginning after December 31, 2021, effectively eliminating or reducing the DTA or DTL.  

For companies above the limit, retroactive amendments for the R&D capitalization are disallowed; however, companies can elect to accelerate by deducting the remaining domestic R&D expenses incurred between January 1, 2022, and December 31, 2024, over the following one or two years. The book-tax differences over the next two years for most companies will become consistent with one another. In the meantime, companies need to continue tracking any DTAs or DTLs and apply the proper accounting treatments as they are relieved. Companies increasing their R&D investments should also revisit their disclosure practices to maintain transparency around accounting policies, estimates and the strategic rationale behind these expenditures. 

Debt and Interest: Financial Structure Under the Microscope 

The TCJA limited the deductibility of business interest expense to 30% of the taxpayer’s adjusted taxable income (ATI) under IRC Sec. 163(j). ATI from 2022 to 2024 was calculated on an earnings before interest and taxes (EBIT)-based method, which reduced the allowable deductions. The OBBBA modified ATI to be calculated using earnings before interest, taxes, depreciation and amortization (EBITDA), effectively increasing the ATI allowance and allowing more interest deductions. This may incentivize companies to take on more debt to finance growth as they could deduct more interest for tax purposes. This has direct implications for debt classification, covenant compliance, and liquidity risk assessments. Increased leverage also heightens the importance of going concern evaluations under ASC 205-40, especially if expansion plans are rapid and significant or cash flows are uncertain. 

Internal Controls and Audit Considerations 

Rapid expansion, whether through new facilities, equipment, or R&D, can strain existing internal control frameworks. Existing control frameworks should be reviewed throughout the year for improvements; however, during periods of rapid growth, companies should take an even more proactive approach. Here are a few activities a company should consider: 

• Improving segregation of duties and workflow approvals through new hires or other identified roles within the accounting/finance team. 
• Investing in cloud-based accounting systems that are scalable with the business and include automated features for routine tasks and reconciliations. 
• Enhancing and enforcing accounting policies across all locations and departments. 
• Creating a training manual or program will help staff better understand and follow procedures. 
• Tracking KPIs and formally documenting reviews. 
• Strengthening the governance structure to include individuals with the requisite skills. 

For public companies, this raises the risk of material weaknesses under SOX 404 if controls are not updated in tandem with operational growth. 

Enhanced Disclosures: Telling the Full Story 

Stakeholders will be looking for clear, comprehensive disclosures that explain how the OBBBA is impacting the business. These include: 

• Changes in accounting estimates or policies 
• Deferred tax impacts and reconciliations 
• Risks associated with expansion or increased leverage 

Transparent financial reporting not only meets regulatory expectations; it also builds trust with investors, lenders, and business partners. The OBBBA offers powerful incentives for U.S. manufacturers and distributors but also demands rigorous financial reporting and audit readiness. By proactively aligning accounting practices with the bill’s provisions, companies can position themselves for sustainable growth while maintaining the integrity of their financial statements. 

If you’d like to discuss how the OBBBA may affect your financial reporting, audit strategy, or future growth, our team is here to help