FASB to draft ASU on presenting items reclassified out of accumulated OCI

FASB has directed its staff to prepare an exposure draft of an Accounting Standards Update (ASU) on presentation of items reclassified out of accumulated other comprehensive income (OCI), according to the board’s website.

During a meeting Wednesday, the board discussed feedback from stakeholders on the exposure draft issued in August, Comprehensive Income (Topic 220): Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income.

After considering stakeholder concerns about costs and benefits, the effective date and issues regarding the transition to the new rules, FASB made key decisions, which will become effective only after a formal written vote by the board on the ASU:

1. The ASU will require an entity to provide enhanced disclosures to present, separately by component, reclassifications out of accumulated other comprehensive income.
2. If U.S. GAAP requires items to be reclassified to net income in their entirety, the ASU would require the entity to disclose the effect of reclassification on the respective line items of net income. For items that U.S. GAAP does not require to be reclassified to net income in their entirety, the ASU would require an entity to provide a cross-reference to other disclosures currently required under U.S. GAAP for those items.

When the information contained in Items 1 and 2 is presented in notes to financial statements, the ASU will not require the entity to present the information in a tabular format as long as all the required information is in a single location.

The ASU would allow the required information in Item 2 to be presented in the notes or parenthetically on the face of the financial statements, as long as all the information is presented in one place. Entities will have the option of voluntarily providing duplicate information in the notes and on the face of the financial statements.

If approved, the ASU will be effective for reporting periods beginning after Dec. 15 for public entities and for reporting periods beginning after Dec. 15, 2013, for nonpublic entities.

This project has a long history. After investors communicated a need to present OCI more prominently in financial statements, FASB and the International Accounting Standards Board (IASB) embarked on a project designed to bring consistency and prominence to OCI reporting around the world.

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Simultaneously, the IASB issued amendments to International Accounting Standard 1, Presentation of Financial Statements. Although FASB and the IASB agreed on how items of OCI should be reported, differences remained between U.S. GAAP and IFRS.

But in December of last year, the portion of FASB’s guidance dealing with reclassifications out of accumulated OCI was deferred after FASB heard concerns that requirements would be costly for preparers and add unnecessary complexity to financial statements.

The new approach for presenting information about items reclassified out of accumulated OCI was designed to be more cost-effective. In comment letters submitted to FASB, industry executives generally agreed that the requirements set forth in the ED would not substantially raise preparation costs.

But there also was agreement that the disclosures were redundant and unnecessary.

“As stated in the ED, substantially all of the information required to be presented in this proposal is already required to be disclosed elsewhere in the financial statements,” IBM Vice President for Accounting Policy and Financial Reporting Gregg Nelson said in a comment letter. “While the proposal would not require significant cost to implement, the fact that no new information is provided raises the question of why this proposal is necessary.”

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.