Cpa Review- Far 1-3 (Comprehensive Income)

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Comprehensive Income

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The change in equity (net assets) of a business during a period from transactions and other events from non-owner sources.

-Includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

-PUFE*

Hint 1

*PUFE likes to revalue his income

1. Pension Adjustments
2. Unrealized Gains and Losses (AFS Securities)
3. Foreign Currency Items
4. Effective Portion CF Hedges
5. Revalution Surplus (IFRS only)

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Comprehensive Income Steps

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Step 1: Net Income (I/S to R/E to E)- contains
1. Income from continuing operations
2. Discontinued operations
3. Extraordinary Items

Step 2: Other Comprehensive Income (direct to equity)- revenues, expenses, gains, and losses that are included in comprehensive income but excluded from net income under GAAP and/or IFRS

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Other Comprehensive Income

Pension Adjustments (IFRS Side 3)

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1. Pension Adjustments: changes in the status of a pension plan (due to gains/losses, prior service costs, and net transition assets/obligations) must be recognized in OCI in the year changes occur. Included here until recognized as a component of net periodic benefit cost.

Hint 3

IFRS- certain actuarial gains and losses may be included in OCI. Not reclassified to net income in subsequent periods.

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Other Comprehensive Income

Unrealized Gains and Losses

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Following types of unrealized gains/losses are reported as OCI until securities are sold-

1. Unrealized holding and losses on AFS securities
2. Unrealized holding gains/losses that result from debt security being transferred into the AFS category from held-to-maturity.
3. Subsequent decreases/increases in the FV of AFS securities previously written down as impaired.

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Other Comprehensive Income

Foreign Currency Items

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Translation adjustments and gains/losses on foreign transactions that are designated as economic hedges of net investment in a foreign entity are reported as OCI. Remain here until the sale or liquidation of the investment in the foreign entity.

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Other Comprehensive Income

Effective Portion of Cash Flow Hedges

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Reported as a component of OCI until CF's associated w/ the hedged items are realized.

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Other Comprehensive Income

Revaluation Surplus (IFRS only)

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Revaluation surpluses (gains) recognized when intangible and fixed assets are revalued are also included in OCI.

Not reclassified to net income in subsequent periods but may be transferred directly to R/E's when the related asset is used or de-recognized.

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Reclassification Adjustments

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Move OCI items from accumulated OCI to the income statement. Avoids double counting.

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Accumulated Other Comprehensive Income

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Is a component of equity that includes the total of OCI for the period and previous periods. OCI for the period is closed to this account which is reconciled each period.

-Just like R/E's account.

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End of Period Comprehensive Income

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All components of CI are closed to the balance sheet. Net income is closed to the R/E's and OCI is closed to Accumulated OCI.

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Financial Statement Reporting of Comprehensive Income

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-Requirements to present CI don't apply to not-for-profit entities of to any company that doesn't have any items of OCI.

-CI shouldn't be reported on a per share basis

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Comprehensive Income

May be Reported On

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1. Single statement of CI
2. An income statement followed by a separate statement of CI that begins with Net Income
3. Statement of changes in equity (ending soon)*

Hint 12

*Only allowed by U.S. GAAP but this is ending December 15, 2011 for public entities and December 15, 2012 for nonpublic entities.

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Single Statement Approach for Comprehensive Income

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-Starts with revenues and displays CI items individually and in total, below the net income amount, and totals them for CI

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Two-Statement Approach for Comprehensive Income

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-Starts with Net Income instead of revenue, displays CI as a separate statement that immediately follows the income statement.

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Component within the Statement of Owners' Equity for Comprehensive Income

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-U.S. GAAP only, ending soon.

-May be displayed in a separate column in the statement of owners' equity.
-Separate presentation of accumulated OCI is required as part of the statement of owners' equity.

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Other Reporting Issues

Other Comprehensive Income

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Components of OCI may be reported (1) net of tax or (2) before tax effects with one amount shown for the aggregate income tax expense or benefit to the total of OCI items.

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Other Reporting Issues

Income Tax Expense or Benefit

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Amount of income tax expense or benefit allocated to each component of OCI is displayed either on the face of the statement in which those components are displayed or in the notes to the F/S's.

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Other Reporting Issues

Interim Period Reporting

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A total for CI shall be reported in condensed F/S's of interim periods issued to shareholders.

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Other Reporting Issues

Required Disclosures (4)

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Must disclose-

1. Tax effects of each component included in (current) OCI either as part of the statement presentation or in the notes to the F/S's.

2. Changes in the accumulated balances of each component of OCI (may be shown on the face of the F/S's or in the notes to the F/S's)

3. Total accumulated OCI in the balance sheet as an item of equity

4. Reclassification adjustments which are made to avoid double counting in OCI items that are displayed in net income for the current year.