Note: Reference cited below, FAS130, remains the most current accounting literature in the United States on this topic.
In 1997 the
United States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 130 entitled "Reporting Comprehensive Income". This statement required all
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
items to be reported either as a regular item in the income statement or a special item as other comprehensive income. It is commonly referred to as FAS130. The International Accounting Standards Board issued the International Accounting Standard 1 with a slightly different terminology but an conceptually identical meaning.
Comprehensive income
''
Comprehensive income
In company financial reporting in the United States, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use ...
'' (IAS 1: "Total Comprehensive Income") is the total non-owner change in equity for a reporting period. This change encompasses all changes in equity other than transactions from owners and distributions to owners. Most of these changes appear in the income statement. A few special types of gains and losses are not shown in the income statement but as special items in shareholder equity section of the balance sheet.
Since these comprehensive income items are not closed to retained earnings each period they accumulate as shareholder equity items and thus are entitled "Accumulated Other Comprehensive Income" and is sometimes referred to as "AOCI".
Accumulated other comprehensive income is a subsection in
equity where "other comprehensive income" is accumulated (summed or "aggregated").
The balance of AOCI is presented in the Equity section of the Balance Sheet as is the Retained Earnings balance, which aggregates past and current Earnings, and past and current Dividends.
Other comprehensive income
''Other comprehensive income'' is the difference between
net income as in the
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
(profit or loss Account) and
comprehensive income
In company financial reporting in the United States, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use ...
, and represents the certain gains and losses of the
enterprise
Enterprise (or the archaic spelling Enterprize) may refer to:
Business and economics
Brands and enterprises
* Enterprise GP Holdings, an energy holding company
* Enterprise plc, a UK civil engineering and maintenance company
* Enterpris ...
not recognized in the P&L Account. It is commonly referred to as "OCI" although the word comprehensive has no meaning as can be seen from the definitory equation. OCI when translated into another language and back into English means "other income" only.
In practice, it comprises the following items:
# Unrealized gains and losses on
available for sale
Available for sale (AFS) is an accounting term used to classify financial assets. AFS is one of the three general classifications, along with held for trading and held to maturity, under U.S. Generally Accepted Accounting Principles (US GAAP), spe ...
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
AS 39/ ''"FAS 115" – "Accounting for Certain Investments in Debt Securities"''# Gains and losses on
derivatives held as
cash flow hedge
{{finance-stub
A cash flow hedge is a hedge of the exposure to the variability of cash flow that
# is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rat ...
s (only for effective portions)
AS 39/ ''"FAS 133" – "Accounting for Derivative Instruments and Hedging Activities"''# Gains and losses resulting from translating the financial statements of foreign subsidiaries (from foreign currency to the presentation currency)
AS 21/ ''"FAS 52" – "Foreign Currency Translation"''
# Actuarial gains and losses on defined benefit plans recognized (Minimum
pension liability adjustments)
AS 19/ ''"FAS 158" – "Employers' Accounting For Defined Benefit Pension And Other Postretirement Plans"''# Changes in the
revaluation
Revaluation is a change in a price of a good or product, or especially of a currency, in which case it is specifically an official rise of the value of the currency in relation to a foreign currency in a fixed exchange rate system. In contrast, ...
surplus
AS 16 and IAS 38
As, AS, A. S., A/S or similar may refer to:
Art, entertainment, and media
* A. S. Byatt (born 1936), English critic, novelist, poet and short story writer
* As (song), "As" (song), by Stevie Wonder
* , a Spanish sports newspaper
* , an academic ...
While the AOCI balance is presented in Equity section of the
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a Partnersh ...
, the annual accounting entries, as flows, are presented sometimes in a
Statement of Comprehensive Income
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
. This statement expands the traditional
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
beyond earnings to include OCI in order to present comprehensive income.
Under the revised IAS 1, all non-owner changes in equity (
comprehensive income
In company financial reporting in the United States, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use ...
) must be presented ''either'' in one Statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income).
Reclassification to profit or loss (P&L)
Flows presented initially in OCI sometimes are reclassified into Earnings (Profit or Loss) when certain conditions are met. For the five types of OCI described above, the triggers for reclassification are presented in the accounting standard that gives rise to the OCI flow.
Alterations to definition of OCI
In the United States further alterations to this OCI definition occur when a new standard (including a revision of a previously issued accounting standard) identifies an item that can be measured, should be measured in the financial statements, represents a "flow" variable rather than a stock, or snapshot, variable, and does not represent a flow variable that should be presented in the Income Statement as a component of Earnings. The flow variable that is both measurable and should be recognized is then added to the list above of items that a reporting entity would include in AOCI.
In the third quarter of 2008 the United States Securities and Exchange Commission received several proposals to allow the recognition in AOCI of certain fair value changes on financial instruments. This proposal was initially well received by representatives of the banking community who felt that Earnings recognition of these fair value changes during the concurrent "credit meltdown of 2008" would be inappropriate. The effect of this proposal, on balance, would be to remove sizeable losses from Earnings and thus Retained Earnings of banks, and assist them in preserving their regulatory capital. The regulatory capital of banks in the US and generally worldwide includes contributed equity capital and retained earnings but excludes AOCI, even though it is reported as a component of the Equity section of the Balance Sheet.
The FASB released an Accounting Standards Update on January 5, 2016 that changes items reported in OCI. Previously, equity securities could be classified as available for sale, and unrecognized gains and losses on these securities appeared in OCI. However, per this update, there is no longer an available for sale classification for equity securities if the fair value of these securities can be readily determined. Changes in the fair value of equity investments in unconsolidated entities flow through earnings for fiscal years beginning after December 15, 2017.
See also
*
Balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a Partnersh ...
*
Comprehensive income
In company financial reporting in the United States, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use ...
*
Hedge accounting
Hedge accounting is an accountancy practice, the aim of which is to provide an offset to the mark-to-market movement of the derivative in the profit and loss account.
There are two types of hedge recognized. For a fair value hedge, the offset ...
*
Reserve (accounting)
In financial accounting, reserve always has a credit balance and can refer to a part of shareholders' equity, a liability for estimated claims, or contra-asset for uncollectible accounts.
A reserve can appear in any part of shareholders' equity e ...
*
Statement of comprehensive income
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
References
{{reflist
Accounting in the United States