The Statement of Comprehensive Income Gets a Promotion

6/24/2010

By David J. Bayens, CPA

The Financial Accounting Standards Board (FASB) recently issued an exposure draft on the topic of Comprehensive Income. Presently, comprehensive income information may be presented in one of three places: within the statement of stockholders’ equity, at the bottom of the income statement or as a separate statement. If adopted, the pronouncement would require that the components of comprehensive income be presented with income statement information in a continuous statement- “a statement of financial performance.”

This new form of presentation gives greater prominence to the items included in comprehensive income. Another goal of this change is to improve the understandability of comprehensive income and its relationship to changes in certain balance sheet accounts and components of the income statement. It would also provide a better format for analyzing changes in components of comprehensive income from one year to the next.

For banks, components of comprehensive income typically include:

• Changes in unrealized gains or losses on securities available for sale,
• Gains or losses on derivative instruments qualifying as cash flow hedges,
• Certain gains or losses on pension or postretirement benefits, and
• Foreign currency translation adjustments.

The exposure draft was issued in conjunction with the new exposure draft on fair value accounting for financial instruments. Changes in the fair value of financial instruments would be a new component of comprehensive income. These accounting changes coincide with those proposed by the International Accounting Standards Board. The adoption of the new comprehensive income rules are expected to take place when the fair value accounting changes are implemented.