FASB topic 220-10-45 outlines what is required for companies to report comprehensive income (CI). To do this, the entity must report CI either in a single continuous financial statement or in two separate but consecutive financial statements. If an entity prefers to report CI in a single continuous financial statement, then the entity must report the components in two sections entitled net income and other comprehensive income (OCI). For both net income, and OCI, a total along with the components that make up the total must be presented. If there are no items that make up OCI, then the entity does not have to have an OCI section.
If the entity instead decides to report CI in two separate but consecutive statements, entities must report the total, and the components of net income in the statement of net income. They must also report the total and components of OCI, and a total for CI, which must be given immediately after the statement of net income. The entity may also begin the second statement with net income. If the entity holds an outstanding noncontrolling interest, then the entity must report both net income and CI from their activities, as well as net income and CI from the noncontrolling interest in the less-than-wholly-owned subsidiary.
The entity must also present consolidated net income and CI. Items that are needed in net income are made up of various components, including items of income from continuing operations, discontinued operations, and extraordinary items. Below are what FASB topic 220-10-45 lists as specific items that are currently required to be reported in OCI:
a) Foreign currency translation adjustments. b) Gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date. c) Gains and losses on intra-entity foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting entity’s financial statements. d) Gains and losses (effective portion) on derivative instruments that are designated as, and qualify as, cash flow hedges.
e) Unrealized holding gains and losses on available-for-sale securities. f) Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale category from the held-to-maturity category. g) Amounts recognized in other comprehensive income for debt securities classified as available-for-sale and held-to-maturity related to an other-than-temporary impairment recognized in accordance with Section 320-10-35 if a portion of the impairment was not recognized in earnings. h) Subsequent decreases or increases in the fair value of available-for-sale securities previously written down as impaired.
i) Gains or losses associated with pension or other postretirement benefits. j) Prior service costs or credits associated with pension or other postretirement benefits. k) Transition assets or obligations associated with pension or other postretirement benefits.
Below are what FASB topic 220-10-45 lists as items that are not part of CI: a) Changes in equity during a period resulting from investments by owners and distributions to owners. b) Items required to be reported as direct adjustments to paid-in capital, retained earnings, or other nonincome equity accounts. Examples of these include a reduction of shareholders’ equity related to employee stock ownership plans, taxes not payable in cash, and net cash settlement resulting from a change in value of a contract that gives the entity a choice of net cash settlement or settlement in its own shares.
Entities must present the components of OCI in the statement in which OCI is reported. This can be given as either net of related tax effects, or before related tax effects, with one amount shown for the aggregate income tax expense/benefit related to the total of the OCI components. The income tax expense/benefit for each individual component of OCI, including reclassification adjustments, must be presented in the same statement in which OCI components are presented, or the entity must disclose this in the notes to the financial statements. The total for OCI for the reporting period must be transferred to a component of equity that is reported separately from retained earnings and additional paid-in capital.
The title for this component of equity will be Accumulated Other Comprehensive Income (AOCI). Any changes that occur in the accumulated balances for each required component of OCI in this separate component of equity (AOCI). The changes that occur in AOCI must correspond to the changes in OCI. An entity must make reclassification adjustments to avoid double counting of items in CI that are presented in both net income and OCI. An example of this would be gains from investment securities that have been realized and included in net income, that have also been included in OCI as unrealized holding gains.
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