FASB Issues ASU 2011-05 – Presentation of Comprehensive Income
By Varghese John, Manager and Armine Arushanova, Staff Accountant
Comprehensive income comprises all components of net income and all components of other comprehensive income, and is also defined as “all nonowner changes in stockholders’ equity”. According to ASC 220-10-45-1, an entity has the option to present the total of comprehensive income, which is all components of net income and all components of other comprehensive income, either in a single continuous statement of comprehensive income or in two separate but consecutive statements.
In a single continuous statement, as per ASC 220-10-45-1A, the entity is required to present the following items:
- Components of net income
- Total net income
- Components of other comprehensive income
- Total for other comprehensive income
- Total for comprehensive income.
In the two-statement approach, as per ASC 220-10-45-1B, an entity is required to present the statement of net income and the statement of other comprehensive income. The statement of net income should include the following items:
- Components of net income
- Total net income
The statement of other comprehensive income should immediately follow the statement of net income and include the following items:
- Components of other comprehensive income
- Total for other comprehensive income
- Total for comprehensive income.
Under both approaches, and unlike US GAAP, the amendment requires an entity to present reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the statement(s) where the components of net income and the components of other comprehensive income are presented. This prevents the double counting of items in both net income and OCI. ASU 2011-05 doesn’t change the items to be reported in the OCI or when those items should be reclassified to net income. Additionally, entities still have the option to present components of other comprehensive income 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 other comprehensive income items in accordance with ASC 220-10-45-11. In both cases, the tax effect for each component must be disclosed either in the notes to the financial statements or presented in the statement in which other comprehensive income is presented. In addition, the amendment does not affect how earnings per share is calculated or presented.
The intent of this amendment is to bring FASB and IASB closer to one another in terms of the presentation of OCI. Differences other than the presentation of OCI are not eliminated by this Update. For example, the types of items to be reported in other comprehensive income and the requirements for reclassifying those items into net income will still be different between US GAAP and IFRS standards.
Due Dates
ASU 2011-05 should be applied retrospectively. For publicentities, the amendments are effective for fiscal years, and interim periods, beginning after December 15, 2011. The amendments are effective for non public entities for fiscal years ending after December 15, 2012, and interim and annual periods thereafter.Early adoption is permitted.
Many stakeholders have raised concerns about having an adequate amount of time to implement the level of detail required for items reclassed from other comprehensive income to net income.Consequently, on October, 12, 2011, FASB added an agenda item to discuss whether to delay the effective date of implementing certain provisions related to the presentation of reclassification adjustments
Who is Affected?
All entities that report other comprehensive income will be affected by this amendment.
Conclusion
ASU 2011-05, effective for fiscal years, and interim periods, beginning after December 15, 2011, changes how comprehensive income is presented, but does not change the components of comprehensive income.As a result of stakeholder comments, FASB is considering deferring the effective date of certain of the provisions. Those companies expecting to be effected by this amendment should monitor FASB actions for updated implementation guidance, but should begin to prepare to adopt the new presentation and disclosure requirements.
Kim Lamplough contributed to this article.
