Exposure Draft on Comprehensive Income

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 4th 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.
 

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Linda is a CPA living in Southwestern Ohio, working as a research accountant for an investor-owned publicly traded utility company. She specializes in implementing new FASB and SEC requirements and FAS 133 derivative issues. In her role at the utility she has encountered many issues and written many memos, so send in your implementation and derivative issues and Linda will help figure out an answer.

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