Exposure Draft on Comprehensive Income

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The FASB and the IASB issued exposure drafts on FASC 220 – Comprehensive Income. The exposure draft proposes to eliminate two options for presenting Comprehensive Income and require a Statement of Comprehensive Income (SOCI) to replace the current income statement. EPS will still be based on net income. The exposure draft calls for retrospective application of the changes.

The effective date for this change will be decided when the final statement is released. The final statement is expected in the 4^th Quarter of 2010 and will probably be effective 1/1/2012.

1. Statement of Comprehensive Income (SOCI)

Presentation

A SOCI is required each reporting period (annual and interim) with two sections that include the components of net income and the components of other comprehensive income (OCI). The presentation rules for the components of net income have not changed and will include continuing operations, discontinued operations and extraordinary items. The second part of the SOCI will include foreign currency translation adjustments, unrealized gains and losses on cash flow hedges, unrealized gains and losses on available for sale securities and those components of pension costs that are not recognized immediately as a component of net periodic benefit cost.

Tax Effects

These components can be presented net of tax or gross of tax with one amount shown for the aggregate income tax expense or benefit. The amount of the tax expense or benefit for each component must be disclosed either on the face of the SOCI or in a footnote.

Reclassification Adjustments

The amount of unrealized gains or losses that are reclassified to earnings during the period is to be presented on the face of the SOCI.

Example of SOCI from exposure draft:

Entity

Statement of Income and Comprehensive

Income Year Ended December 31, 201X

Revenues $140,000

Expenses (25,000)

Other gains and losses 8,000

Gain on sale of securities 2,000

Income from operations before tax 125,000

Income tax expense (31,250)

Income before extraordinary item 93,750

Extraordinary item, net of tax (30,500)

Net income 63,250

Other comprehensive income, net of tax:

Foreign currency translation adjustments 8,000

Unrealized gains on securities:

Unrealized holding gains arising during period 13,000

Less: reclassification adjustment for gains

included in net income (1,500) 11,500

Defined benefit pension plans:

Prior Service Cost arising during period (1,600)

Net loss arising during period (1,000)

Less: amortization of prior service cost

included in net periodic pension cost 100 (2,500)

Other comprehensive income 17,000

Comprehensive income 80,250

A net approach for the components of comprehensive income with a gross presentation in the footnotes would no longer be allowed.

2. Accumulated Other Comprehensive Income (AOCI)

AOCI will continue to be presented on the balance sheet as a separate component of equity and the accumulated balances for each component will continue to be disclosed in either the Statement of Changes in Equity or the footnotes. However, since the detail behind the changes in OCI will be on the face of the SOCI, comprehensive income can be presented as a single total.

For example:

Current Disclosure for AOCI

Beginning Balance $xxx

Gains/Losses on AFS Securities xxx

Pension Costs xxx

Other Comprehensive Income xxx

Ending Balance $xxx

New Disclosure for AOCI

Beginning Balance $xxx

Other Comprehensive Income xxx

Ending Balance $xxx

As currently required the accumulated balances must be broken down by components to show the current period change. For example:

	Unrealized Gain On Securities	Defined Benefit Pension Plan	Accumulated Other Comprehensive Income


Beginning Balance	$xxx	$xxx	$xxx
Current Period Change	xxx	xxx	xxx
Ending Balance	$xxx	$xxx	$xxx

The amount of the Current Period Change should equal Other Comprehensive Income on the SOCI.

Not a lot of change, except for the IT people who will need to rewrite the reports for the income statement. Stay tuned for the final statement.

Exposure Draft on Comprehensive Income

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