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Statement of comprehensive income: new reporting and disclosure requirements.

Executive Summary

This article deals with financial reporting requirements for comprehensive income (CI), primarily for U.S. companies. This accounting guidance resulted from the joint efforts of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), which began in April 2004, when the Boards agreed to undertake a joint project on financial statement presentation. Although consideration of this issue was initially a joint project, ultimately the Boards issued separate amendments and updates to their respective standards dealing with comprehensive income.

An entity's comprehensive income (CI) for a period, which includes its current period net income plus or minus changes in the components of other comprehensive income (OCI), provides extremely important financial information that assists investors and creditors to more fully understand the changes in owners' equity and the future cash-flow-generating ability of the entity. The changes in the components of OCI (as discussed in detail later) are not reported directly in the income statement until such amounts are realized, even though they can have a profound effect on an entity's equity, and hence, the wealth of its stockholders. However, because of the way entities previously reported this information, it was often overlooked and not sufficiently understood.

Therefore, during 2011, both the FASB and the IASB revised their guidance to enhance the transparency in the way entities should report and disclose Cl and changes in OCI. The FASB issued additional important guidance in 2013. However, there are still some differences between the two sets of standards concerning the types of items reported in OCI and the requirements for grouping such items that may or may not be reclassified into net income.

The objectives of this article are to describe and illustrate the FASB's new presentation and disclosure requirements for the statement of CI and its components, and to highlight some important implementation considerations.

Introduction

This article deals with financial reporting requirements for comprehensive income (CI), primarily for U.S. companies. This accounting guidance resulted from the joint efforts of the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), which began in April 2004, when the Boards agreed to undertake a joint project on financial statement presentation. The Boards issued a Discussion Paper on Financial Statement Presentation on October 16, 2008 but have not yet completed this project. However, the Boards considered as a separate matter the presentation of OCI. Although consideration of this issue was initially a joint project, ultimately the Boards issued separate amendments and updates to their respective standards.

Comprehensive Income

Comprehensive income (CI) includes all changes in shareholders' equity during a period except transactions with shareholders (e.g., issuance or repurchase of stock and distributions, such as dividends). CI for any reporting period consists of net income, as reported in the income statement, plus or minus the current period's changes in OCI items that are not reported in the income statement. Accounting Standards Codification (ASC) 220-10-45-10A provides a detailed list of all of the components of other comprehensive income, including the following items which are presented in this article:

* Foreign currency translation adjustments (as explained in FASB ASC 830-30-45-12)

* Gains and losses (effective portion) on derivative instruments that are designated as, and qualify as, cash flow hedges (see paragraph 815-20-35-1 (c)) -1)

* Unrealized holding gains and losses on marketable security investments designated as "available-for-sale securities" (ASC 320-1045-1)

* Gains or losses associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) (ASC 715-20-50-1 (j))

* Prior service costs or credits associated with pension or other postretirement benefits (ASC 715-20-50-1 (j))

* Transition assets or obligations associated with pension or other postretirement benefits (that are not recognized immediately as a component of net periodic benefit cost) (ASC 715-20-50-1 (j))

The FASB previously decided that including OCI items in the income statement would clutter that statement and produce too much volatility in periodic income. Still, the FASB expressed as part of their objectives that the information obtained from the reporting of comprehensive income, along with other information in the financial statements and accompanying disclosures, would help investors, creditors, and other users in evaluating an enterprise's future cash flows.

In the FASB's Proposed Accounting Standards Update issued May 26, 2010, they also mentioned that useful information is provided by not only reporting total comprehensive income but also by reporting detailed information about the components of comprehensive income and changes in them.

The FASB issued three accounting standard updates during 2011 and 2013, before they and their constituents were satisfied that the new requirements would produce informative and cost effective guidance on how comprehensive income and its components should be reported and disclosed in the financial statements. The following discussion summarizes and illustrates the key guidance in those standards which have reshaped the way entities are required to report and disclose such important information.

Accounting Standards Update No. 2011-05 Requirements

In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income to revise the manner in which entities would have to present and disclose comprehensive income in their financial statements. The previous guidance in FASB Accounting Standards Codification (ASC) 22010-45-8 allowed three options for reporting comprehensive income: 1) total comprehensive income for the period, as well as components of OCI, could be reported below the total for net income in a single combined statement of income and CI, 2) in a separate statement of comprehensive income that begins with net income, and 3) within the statement of owners' equity.

The third, least informative method was the one predominantly used by reporting entities. Therefore, the guidance in ASU 2011-05 removed the third presentation option in ASC 220 but did not change the items that must be reported in OCI. This standard applies to all entities that provide a full set of financial statements. It also applies to investment companies, defined benefit pension plans, and other employee benefit plans that are exempt from the requirement to provide a statement of cash flows. It became effective for fiscal years beginning after December 15, 2011 for public entities and for fiscal years ending after December 15, 2012 for nonpublic companies.

Under ASU 2011-05, entities have the option to present total comprehensive income, the components of net income, and the components of OCI in either of the following two ways:

* A single, continuous statement of comprehensive income--Entities must include the components of net income, a total for net income, the components of OCI, a total for OCI, and a total for comprehensive income.

* Two separate but consecutive statements --Entities must report components of net income and total net income in the statement of net income (i.e., the income statement), which must be immediately followed by a statement of OCI that must include the components of OCI, a total for OCI, and a total for comprehensive income. A reporting entity may begin the second statement with net income.

The ASU did not change the current option for entities to present components of OCI gross or net of the effect of income taxes, provided that such tax effects are presented in the statement in which OCI is presented, or disclosed in the notes to the financial statements.

In June 2011, the International Accounting Standard Board (IASB) also issued its corresponding guidance to amend International Accounting Standard (IAS) 1, Presentation of Financial Statements. The amendment, Presentation of Items of Other Comprehensive Income (Amendments to IAS 1):

* Requires that entities report net income and OCI using one of the two formats mentioned above for ASU 2011-05.

* Requires that items be presented in OCI separately as to those that may be subsequently reclassified into net income and those that will not be reclassified and, therefore, will remain in accumulated OCI.

The tax effect of each grouping must be shown separately.

* Became effective for fiscal periods beginning on or after July 1, 2012.

Though the two Boards' 2011 guidance essentially converged the requirements for presenting OCI, there remained differences between U.S. Generally Accepted Accounting Principles (GAAP) and IFRS concerning: (1) the types of items to be included in comprehensive income and (2) the requirements for grouping such items that may or may not be reclassified into net income.

* U.S. GAAP considers all items recorded in OCI as subject to reclassification into net income and, therefore, no separate presentation groupings are required.

* On the other hand, IFRS requires the presentation of items in OCI that ultimately may be reclassified into net income to be presented separately from those that will not be reclassified into net income. For example, reclassification adjustments do not arise from an OCI component resulting from changes in revaluation surplus recognized in accordance with IAS 16, Property, Plant and Equipment. No such OCI component exists under U.S. GAAP.

ASU 2011-05, as originally issued, required one additional very controversial reporting requirement. That is, under either of the two methods entities could use to report Cl, they were also required to present reclassification adjustments out of Accumulated Other Comprehensive Income (AOCI) by component, in both the statement where net income is presented and the statement where comprehensive income is presented.

Prior to ASU 2011-05, entities had an option to present reclassification adjustments in either the statement in which comprehensive income is reported or in the notes to the financial statements (most entities used the second alternative).

During initial implementation of ASU 2011-05, constituents raised several concerns over this new requirement, which included:

* Availability of information required at a necessary level of detail would be difficult to obtain for certain components.

* There would be a potential cluttering effect of information in financial statements, especially the income statement.

* There was concern about the cost of preparing the level of detailed information required for interim reporting purposes.

* There were questions about how to apply the provisions to reclassifications out of AOCI that are initially recorded on the balance sheet.

Therefore, in December 2011 the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This accounting standard update deferred the requirement for entities to present reclassification adjustments out of accumulated other comprehensive income (AOCI) by component in both the statement in which net income is presented and the statement in which OCI is presented (for both interim and annual financial statements).

During the deferral period, entities still needed to comply with the requirements in ASC 220 for the presentation of reclassification adjustments. Those requirements gave entities the option of presenting reclassification adjustments out of AOCI on the face of the statement in which OCI is presented or disclosing reclassification adjustments in the footnotes to the financial statements.

Exhibit 1, adapted from ASC 220-10-55-7, illustrates one format (required under ASU 11-05) for presenting the statement of comprehensive income (one continuous statement) for the year ended December 31, 201X, with gross amounts of other comprehensive income components, including their reclassification adjustments, shown net of tax effects.

(Note that additional disclosures would also be required to explain the effect of the reclassification adjustments on the various line items in the statement of income, as will be explained below.) Also, for simplicity, this example provides information only for a single period; however, most entities are required to provide comparative financial statements.

ASU No. 2013-02 Requirements (1)

After issuing a proposed ASU on CI in August 2012, the FASB decided not to reinstate the reclassification adjustment requirements in ASU 2011-05 but rather to issue a final standard in February 2013, ASU 2013-02, Comprehensive Income (Topic 220 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income), An Amendment of the FASB Accounting Standards Codification.

The objective of ASU 2013-02 is to improve the transparency of changes in OCI, and items reclassified out of AOCI in the financial statements. It does not amend any existing requirements for reporting net income or OCI in the financial statements, such as the requirement to present components of OCI using either a single continuous statement of comprehensive income or two separate but consecutive statements (as required by ASU 2011-05).

ASU 2013-02 requires entities to disclose additional information about reclassification adjustments, including changes in AOCI balances by component, and information about significant reclassification adjustments out of AOCI, and their effect on net income. This ASU was effective for fiscal years, and interim periods within those years, beginning after December 15, 2012, for public entities. So for calendar year end public entities, this means it first became effective for the quarter ended March 31, 2013. Nonpublic entities were granted a one year deferral, specifically for fiscal years beginning after December 15, 2013, and interim and annual periods thereafter.

The following will provide a step by step explanation of the additional disclosure requirements added by ASU 2013-02, which are quite detailed, and which have been codified in ASC 220, Comprehensive Income.

First of all ASU 2013-02 expands the disclosure requirements for the presentation of changes in AOCI. It does this by requiring an entity to disclose the portion of the current period change in AOCI related to changes in each component of OCI and the amounts of those changes being reclassified out of AOCI. Both public and nonpublic entities are required to present this disclosure in both interim and annual periods.

The example in Exhibit 2, adapted from ASC 220-10-55-15A, shows how an entity may present this information in a tabular format within its footnotes to its financial statements, even though ASC 220 does not specify a particular presentation format. An entity may decide on the most suitable presentation of the information.

As illustrated in Exhibit 2, the change in each component of AOCI is separately presented, as well as the portion of the change attributed to reclassifications out of AOCI and current period changes in OCI, regardless of the significance of the amount. This example also presents the amounts net of tax. An entity can also elect to show the amounts before tax, but must continue to comply with the existing requirements in ASC 220-10-45-12, which requires an entity to present the income tax effect of each component of OCI and reclassification adjustments, as illustrated in ASC 220-10-55-8A.

The second new disclosure required by ASU 2013-02, which may be the more challenging for certain entities to present, deals with presenting information about "significant" items reclassified out of AOCI and the effects they have on net income. This information must be provided "in one location," in either of the following ways: (1)

1. Face of statement where net income is presented (if eligible, as explained below):

* Include before-tax significant reclassification amounts parenthetically on the line item in the income statement affected.

* Present aggregate income tax amount parenthetically on income tax line.

2. Separate disclosure in the notes to the financial statements:

* Disclose the amount reclassified from AOCI and line item affected.

* Reference significant partial reclassifications to respective footnote for additional information.

If an entity has significant portions of OCI components being reclassified from AOCI to net income in "their entirety" in a reporting period (such as a realized gains and losses on cash flow hedges), the entity has the option to present these adjustments either parenthetically by the line item affected on the face of the statement where net income is presented or as a separate disclosure in the financial statement footnotes. However, this option is only allowed if an entity's significant reclassification adjustments are being reclassified to the income statement in their entirety in a reporting period.

For example, if an entity has two components of AOCI (e.g., unrealized gains and losses on available for sale securities and gains and losses on cash flow hedges), both of which have significant amounts being reclassified to the income statement (as opposed to being reclassified to the income statement and balance sheet, which is what is referred to as a partial reclassification) in a reporting period, the entity has the option to present the income statement effects on the face of the financial statement where net income is presented, or in the footnotes.

However, if amounts for the cash flow hedge were instead being reclassified from AOCI to both the income statement and balance sheet, the entity would be required to present the information about both significant reclassification adjustments in its footnotes, since this information must be presented in one place in the financial statements.

If an entity elects to present the information on the face of the financial statement where net income is presented, it would show the pre-tax reclassification amount associated with the particular component of AOCI next to the line item affected, and the tax amounts for these reclassification adjustments would be presented parenthetically in the aggregate on the income tax line item. However, to comply with the existing requirements in ASC 220-1045-12, an entity must then present the income tax amounts allocated to each component of OCI and reclassification adjustments elsewhere in its footnotes. (Nonpublic entities do not have to present this information in their interim reports.)

Exhibit 3 provides an example that illustrates how these required disclosures may be presented on the face of the income statement, if an entity elected to present all its significant reclassification items in such a way. The example in this Exhibit illustrates only one of the components that had a significant reclassification adjustment from the example in Exhibit 2, and uses the same information for the component of OCI--gains and losses on cash flow hedges, presented in Exhibit 1.

(But remember that ASU 2013-02 requires information about all significant reclassification adjustments to be presented in one location, and the option to present them on the face of the income statement can only be elected if "all of the significant reclassification items are reclassified entirely to net income in a reporting period.")

Also note that if an entity does select this option in the current period, it may want to consider whether or not it will have amounts being partially reclassified in future periods, which would then require the entity to present the information in its footnotes. In addition, the entity should consider whether presenting such information for several components of OCI on the face of the income statement may cause it to look cluttered, which was a criticism of ASU 2011-05.

As seen from Exhibit 3, adapted from ASC 22010-55-17F, the amounts are presented before tax and the income tax line item shows the aggregate of the tax amounts. However, as mentioned earlier, an entity would need to disclose elsewhere the income tax expense or benefit allocated to each component of [OCI], including reclassification adjustments.

Exhibit 4, adapted from ASC 220-10-55-17E, provides an example of how an entity may elect or be required to present significant AOCI reclassification adjustments in a separate footnote, using a tabular format, rather than in the income statement provided for only one OCI component in Exhibit 3. Because the requirement is to present this information in a single location that is either on the face of the financial statements or in the footnotes, if an entity has one or more reclassification adjustments that are only partially being reclassified to net income in a reporting period (as illustrated in Exhibit 4, this applies to the pension component), it must present the information in its footnotes.

Entities are required to cross-reference to a related footnote that provides additional information about those significant "partial" reclassification adjustments that are not reclassified entirely to net income in a reporting period. As an example, if an entity has amounts being partially reclassified out of AOCI in a reporting period, such as those related to a defined benefit pension plan, as illustrated in Exhibit 4, it is permitted to cross reference to the related pension footnote that provides additional details.

The AOCI reclassification adjustments footnote disclosure in Exhibit 4 needs to include the income statement line items affected and the corresponding amounts. Both before-tax and net-of-tax presentations are acceptable. Also note that the subtotals for each component shown in the footnote disclosures of significant reclassification items in Exhibit 4 must agree to the comparable amount presented in the changes in AOCI by component disclosures, presented earlier, as required by the new guidance.

As can be seen from the example in Exhibit 4, the total reclassification adjustment of $750 (net of tax) for cash flow hedges, agrees with the $750 in Exhibit 2, which presents the required disclosure for the cash flow hedge component of AOCI. This is only required when the information about significant reclassification items are presented in the footnotes.

IMPLEMENTATION CONSIDERATIONS

ASC 220 and SEC's S-X Interim-Period Disclosures During Initial Year of Adoption:

As discussed in Deloitte & Touche, LLP Practice Alert 13-2, Comprehensive Income: Implementation Considerations During Initial Year of Adoption of ASU 2013-02, ASC 270-10-50-1 (as amended by ASU 2013-02) requires publicly traded companies that report summarized financial information at interim dates, to report at a minimum, the information about changes in accumulated other comprehensive income required by paragraphs 220-10-45-14A and 220-10-45-17 through 45-17B.

This same practice alert also suggests that public entities should consult the SEC's condensed financial statement requirements for guidance on the extent and materiality considerations related to preparing disclosures about reclassification adjustments in interim financial reports. Although the applicable guidance on interim reporting for SEC registrants is in Regulation S-X, Article 10, "Interim Financial Statements," it will not be discussed in this paper, since the interim-period reporting during the initial year of adoption has already passed for most entities.

Public entities would have complied with both the ASC 220 and the Securities & Exchange Commission's (SEC) Regulation S-X requirements if they disclosed (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI in each of their quarterly filings during the initial year of adopting the ASU. Note that these disclosures are required if the entity elects to present only a single line item total for comprehensive income (i.e., not present individual components of OCI) in its interim financial statements, as permitted by ASC 220-10-45-18.

Format of ASU 2013-02's Required Disclosures:

Recall that entities are not required to use a particular format for presenting the required disclosures under ASU 2013-02. Such information may be presented on the face of the financial statements or disclosed in notes to the financial statements in either a tabular or descriptive format. Entities should evaluate the extent to which they have significant reclassification adjustments out of AOCI to determine which presentation would be most suitable for their financial statement users.

Entities that have many reclassification adjustments may wish to use the tabular format discussed in this paper, whereas entities with few reclassification items may elect not to use a tabular format but rather only describe the information in a footnote.

Disclosing the related Tax Effects:

As mentioned earlier, ASU 2013-02 permits an entity to present changes in AOCI by component and significant reclassification adjustments presented in an entity's footnotes either before taxes or net of taxes. But significant reclassification adjustments should be presented on the face of the income statement before taxes, with the aggregate tax amount presented parenthetically on the income tax line. Regardless of the presentation selected for changes in AOCI by component or significant reclassification items in an entity's footnotes, the requirements in ASC 220-10-4512 must be followed.

This guidance requires an entity to present the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, in the statement in which those components are presented or disclosed in the notes to the financial statements. Example 1 in paragraphs 220-1055-7 through 55-8B illustrates the alternative formats for disclosing the tax effects related to the components of other comprehensive income.

Conclusion

The FASB's recent guidance on reporting and disclosure of comprehensive income has significantly enhanced the prominence and clarity of the statement of comprehensive income to users of financial statements. Investors and other financial statement users may not fully understand an entity's income statement in a period that contains OCI components recycled out of the statement of CI, without studying the changes in OCI during the period as well as related statement of CI disclosures.

For example, assume that net income for an entity increased by $2 million dollars during the period. Would that mean that the entity's wealth increased by $2 million? The answer would be no, if that increase in income was due to an unrealized gain on available-for-sale investments which had been reported as a component of OCI in the prior period, and which is now being recycled into net income because the investment was sold and a realized gain was recognized this period.

Someone looking only at the income statement may otherwise think that the entity's wealth increased by $2 million during the period. However, an analysis of the changes in OCI for the period and related disclosures would reveal that while income increased by $2 million, OCI for the period decreased by the same amount, leaving total comprehensive income (and hence the wealth of the entity) unchanged. And as we said earlier, changes in the components of OCI are not reported directly on the income statement until such amounts are realized.

References

Deloitte & Touche, LLP. FASB Finalizes New Disclosure Requirements for Reclassification Adjustments Out of AOCI, Heads Up, Volume 20 Issue No. 5. Wilton CT. Deloitte & Touche, LLP, February 6, 2013.

Deloitte & Touche, LLP. Comprehensive Income: Implementation Considerations During initial Year of Adoption of ASU 2013-02, Practice Alert 13-2. Wilton CT. Deloitte & Touche, LLP, April 10, 2013.

Deloitte & Touche, LLP. Panel Discussion, Key Elements and Considerations of FASB's New Major Converged Financial Accounting and Reporting Standards, presented at 2013 Annual Meeting of the American Accounting Association, August 6, 2013. Panelists:

Patrick A. Casabona, Professor, Saint John's University; Ignacio Perez, Adrian Mills, and Timothy Kolber, Audit & Enterprise Risk Services, Deloitte & Touche, LLP.

Financial Accounting Stands Board (FASB). Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Norwalk, CT, FASB, June 16, 2011.

FASB, ASU No. 2011-12. Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. Norwalk, CT, FASB, December 23, 2011.

FASB, ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, An Amendment of the FASB Accounting Standards Codification. Norwalk, CT, FASB, February 5, 2013.

FASB, Proposed Accounting Standards Update, Comprehensive Income (Topic 220): Statement of Comprehensive Income. Norwalk, CT, FASB, May 26, 2010.

International Accounting Standards Board (IASB). Presentation of Items of Other Comprehensive Income, (Amendments to IAS 1). London, UK: IASB, June 2011.

Securities and Exchange Commission's Regulation S-X, www.sec.gov/about/forms/forms-x.pdf

Patrick A. Casabona, The Peter J. Tobin College of Business, St. John's University, New York

casabonp@stjohns.edu

Timothy Coville, The Peter J. Tobin College of Business, St. John's University, New York

covillet@stjohns.edu

Endnotes

(1) The discussion of ASU 13-02, presented in this paper, is based in part on a portion of the presentation delivered by Deloitte & Touche, LLP, Panel Discussion, Key Elements and Considerations of FASB's New Major Converged Financial Accounting and Reporting Standards, at the 2013 Annual Meeting of the American Accounting Association, August 6, 2013.
Exhibit 1: Single Continuous Statement of Comprehensive income
(one continuous statement reporting income and comprehensive
income)

Entity XYZ Company
Consolidated Statement of Comprehensive Income
Year ended December 31, 201X

Revenues                                                     $122,500
Expenses                                                     (32,000)
Interest income (expense)                                       5,000
Gain on sale of securities                                      4,000
Income from operations before taxes                            99,500
Income tax expense                                           (24,875)
Less: net income attributable to                 (14,925)
  non-controlling interest
Equals Income attributable to XYZ shareholders     59,700
Basic and diluted earnings per share                $0.51

Other Comprehensive Income, net of tax
Foreign currency translation adjustments (a)                  $ 1,000
Unrealized gains on available for sale
    securities (b)
  Unrealized holding gains during period          $ 2,500
  Less: Reclassification adjustments included     (1,500)      $1,000
    in net income
Defined benefit pension plans: (c)
  Prior service cost arising during period        (2,000)
  Net loss arising during period                   (1000)
  Less: Reclassification adjustment for             4,500       1,500
    amortizations of prior period costs
    included in net income
Cash Flow Hedges
  Gains (Losses) on cash flow hedges                3,000
  Less Reclassification adjustments included        (750)       2,250
    in income
Other comprehensive income for period                           5,750
Comprehensive income                                         $ 80,375
Less: net income attributable to non                         (16,075)
  controlling interests
Comprehensive income--attributable to XYZ                    $ 64,300
  shareholders

(a) There was no sale of an investment in a foreign entity and
therefore, no reclassification adjustment for this period
occurred.

(b) This illustrates the gross amounts reclassified out of
accumulated comprehensive income by component. Alternatively, a
net display can be used, with the disclosure of the gross amounts
(current-period gain and reclassification adjustment) reported in
the notes to the financial statements.

(c) This also illustrates the gross amounts reclassified out of
accumulated comprehensive income. Alternatively, a net display
can be used, with the disclosure of the gross amount
(prior-service cost and net loss for the defined benefit pension
plans less amortization of prior-service cost) in the notes to
the financial statements.

Exhibit 2: AOCI Reclassification Adjustments Disclosure Requirements

Entity XYZ
Notes to Financial Statements
Changes in Accumulated Other Comprehensive Income by Component (a)
For the Period Ended December 31, 201X

                                         Unrealized
                                         Gains and
                             Gains and   Losses on
                             Losses on   Available-    Defined
                             Cash Flow    for-Sale     Benefit
                              Hedges     Securities    Pension

Beginning balance            $(1,200)       $1,000    $(8,800)
Other comprehensive income      3,000        2,500     (3,000)
  before reclassifications
Amounts reclassified            (750)      (1,500)       4,500
  from accumulated other
  comprehensive income (b)
Net current-period other        2,250        1,000       1,500
  comprehensive income
Ending balance                 $1,050       $2,000    $(7,300)

                              Foreign
                             Currency      Total
                               Items

Beginning balance              $1,300    $(7,700)
Other comprehensive income      1,000       3,500
  before reclassifications
Amounts reclassified               --       2,250
  from accumulated other
  comprehensive income (b)
Net current-period other        1,000       5,750
  comprehensive income
Ending balance                 $2,300    $(1,950)

(1) All amounts are net of tax. Amounts in parentheses indicate debits.

(b) The Exhibit in ASC 220-10-55-17E provides more details about these
reclassifications then presented here.

Exhibit 3: Example of Disclosing an AOCI Reclassification
Adjustment on Face of Income Statement

Entity XYZ
Statement of Income
For the Period Ended December 31, 201X (a)

Revenues (includes $2,500 (1) accumulated other             $ 122,500
comprehensive income reclassifications for net gains on
cash flow hedges)

Expenses (includes ($2,000 (2)) accumulated other            (32,000)
comprehensive income reclassifications for net losses on
cash flow hedges)

Interest Income (expense) (includes $1,000 (3) accumulated      5,000
other comprehensive income reclassifications for net gain
on cash flow hedges)

Gain on the sale of securities (includes ($500 (4))             4,000
accumulated other comprehensive income reclassifications
for net losses on cash flow hedges)

Income from operations before tax                              99,500

Income tax expense (includes ($2505) income tax expense      (24,875)
from reclassification items)

Net Income                                                   $ 74,625

(a) Note that the reclassification adjustment for cash flow
hedges of $750 in the disclosure example provided in Exhibit 2,
ties into the individual amounts that affected various lines in
the income statement reported in Exhibit 3 as follows: $750 =
$2,500 (1) - 2,000 (2) + 1,000 (3) - 500 (4) - 250 (5).

Exhibit 4: Example of Presenting Required Disclosures
of AOCI Reclassification Adjustments in a Footnote

Entity XYZ
Notes to Financial Statements
Reclassifications Out of Accumulated Other Comprehensive Income (a)
For the Period Ended December 31, 201X

                                  Amount        Affected Line Item in
Details about                  Reclassified    the Statement Where Net
AOCI Components                 from AOCI        Income Is Presented

Gains and losses on
    cash flow hedges
  Interest rate contracts         $1,000      Interest income/(expense)
  Credit derivatives              (500)       Other income/(expense)
  Foreign exchange contracts      2,500       Sales/revenue
  Commodity contracts            (2,000)      Costs of sales
                                  1,000       Total before tax
                                  (250)       Tax (expense) benefit
                                   $750       Net of tax (b)

Amortization of Defined
    Pension items
  Prior service cost             $(2,000)     (c)
  Transition adjustment          (2,500)      (c)
  Actuarial gain (loss)          (1,500)      (c)
                                 (6,000)      Total before tax
                                  1,500       Tax (expense) benefit
                                 $(4,500)     Net of tax (b)

Unrealized gains (losses)
Available for Sale
Securities
                                  $2,300      Realized gain on
                                              sale of securities
                                  (300)       Impairment loss
                                  2,000       Total before tax
                                  (500)       Tax (expense) benefit
                                  1,500       Net of tax (b)
Total Reclassification           $(2,250)     Net of tax (b)
  Adjustments for period

(a) Amounts in parenthesis indicate debits to profit/loss.

(b) Amount agrees with "Amounts reclassified from AOCI" line for
each respective component displayed in the Changes in AOCI by
Component disclosure.

(c) These accumulated other comprehensive income amounts are
included in the computation of the current period's periodic
pension expense (which would be explained in further detail in
the related pension footnote).
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Author:Casabona, Patrick A.; Coville, Timothy
Publication:Review of Business
Geographic Code:1USA
Date:Jun 22, 2014
Words:5467
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