FASB issued an Accounting Standards Update (ASU) that the board said is intended to increase the prominence of other comprehensive income in financial statements and to facilitate convergence of U.S. GAAP and IFRS. Simultaneously, the International Accounting Standards Board (IASB) issued amendments to IAS 1, Presentation of Financial Statements.
FASB’s summary of the ASU noted that, while it reached agreement with the IASB on how items of comprehensive income should be reported, differences between U.S. GAAP and IFRS remain.
For both U.S. GAAP and IFRS, the amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The option in current U.S. GAAP that permits the presentation of other comprehensive income (OCI) in the statement of changes in stockholders’ equity has been eliminated.
FASB ASU no. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, will supersede some of the guidance in Accounting Standards Codification Topic 220, Comprehensive Income. The ASU is available at tinyurl.com/67zwgzx.
The main provisions of ASU no. 2011-05 provide that an entity that reports items of OCI has the option to present comprehensive income in either one or two consecutive financial statements:
- A single statement must present the components of net income and total net income, the components of OCI and total OCI, and a total for comprehensive income.
- In a two-statement approach, an entity must present the components of net income and total net income in the first statement. That statement must be immediately followed by a financial statement that presents the components of OCI, a total for OCI, and a total for comprehensive income.
The amendments do not change the items that must be reported in OCI or when an item of OCI must be reclassified to net income, according to FASB’s summary of the ASU. But regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented.
The amendments do not change the option for an entity to present components of OCI either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of OCI items, according to FASB’s summary. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which OCI is presented. The amendments do not affect how earnings per share is calculated or presented.
FASB’s summary also said that differences in reporting comprehensive income between U.S. GAAP and IFRS remain. In particular, there are some differences between the types of items reported in OCI and the requirements for reclassifying those items into net income. FASB said that removing certain presentation options will make it easier to compare statements of comprehensive income prepared using the different standards.
The amendments in the ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after Dec. 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after Dec. 15, 2012, and interim and annual periods thereafter. Early adoption is permitted, because compliance with the amendments is already permitted.
The IASB’s amendments to IAS 1 are effective for financial years beginning on or after July 1, 2012. An IASB Project Summary and Feedback Statement explaining how the IASB responded to views received during its consultations as well as a podcast introducing the amendments are available on the project page at tinyurl.com/6jmomhj.
The IASB said requiring OCI to be presented as part of, or in close proximity to, the profit or loss (income) statement will make it easier for users of financial statements to assess the effect of OCI items on the overall performance of an entity and improve comparability between IFRS and U.S. GAAP.
Complete coverage of convergence issues is available at the JofA’s “IFRS Resources” page at journalofaccountancy.com/web/ifrs.
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