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Comprehensive income — Key differences between U.S. GAAP and IFRSs

Under U.S. GAAP, ASC 220-10 is the primary source of guidance on reporting comprehensive income. Under IFRSs, IAS 1 is the primary source of guidance on presenting financial statements, including statements of comprehensive income. Under both U.S. GAAP and IFRSs, entities must report components of comprehensive income in either (1) a single continuous statement of comprehensive income or (2) two separate but consecutive statements.

In 2013, the FASB further amended its presentation guidance on other comprehensive income (OCI) by requiring entities to report the effects of significant amounts reclassified out of accumulated OCI (AOCI) on the respective line items in net income if the amounts being reclassified are required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period. Otherwise, when reclassifications to net income are not required in their entirety in the same reporting period, entities are required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.

Specifically, the FASB issued ASU 2013-02 (codified in ASC 220-10), which, for public entities, became effective for fiscal years, and interim reporting periods within those years, beginning after December 15, 2012. Nonpublic entities are required to apply the ASU’s provisions for fiscal years beginning after December 15, 2013, and interim and annual periods thereafter. Prospective application is required.

The table below summarizes these differences and is followed by a detailed explanation of each difference.1

Subject

U.S. GAAP

IFRSs

Reclassification adjustment requirements

Before its adoption of ASU 2013-02, an entity may present reclassification adjustments out of AOCI on the face of the statement in which the components of OCI are presented, or it may disclose those reclassification adjustments in the notes to the financial statements.

Upon an entity’s adoption of ASU 2013-02, if all significant amounts reclassified out of each component of AOCI are required to be reclassified to net income in their entirety in the same reporting period, information about the effects of those significant amounts on net income should be separately provided (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. If reclassifications are not to net income in their entirety in the same reporting period, the entity is required to cross-reference to other relevant disclosures.

An entity may present reclassification adjustments in the statement(s) of profit or loss and OCI or in the notes.

Under ASC 220-10, comprehensive income is defined as follows:

The change in the equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. . . . Comprehensive income comprises both of the following:

a. All components of net income
b. All components of other comprehensive income.

Under IAS 1, as amended in 2011, OCI "comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs."

This Q&A addresses presentation differences in the statement of OCI or the related notes to the financial statements. Neither ASC 220-10 nor IAS 1 indicates how to measure the specific components of OCI. Those specifics are discussed in other U.S. GAAP and IFRSs. Therefore, in addition to the presentation differences discussed below, reporting of OCI under U.S. GAAP may differ from that under IFRSs because of different accounting requirements regarding the measurement, recognition (including timing of recognitions), and recycling of OCI amounts. For information about such differences, refer to the comparison Q&As under the respective topics.

Reclassification Adjustment Requirements

Before the Adoption of ASU 2013-02

ASC 220-10-45-17 states that an "entity may present reclassification adjustments out of accumulated other comprehensive income on the face of the [financial] statement in which the components of other comprehensive income are presented, or it may disclose those reclassification adjustments in the notes to the financial statements." The presentation of reclassification adjustments on the face of the financial statements is referred to as the "gross method." Under this method, reclassification adjustments for a component of OCI should be presented separately from other changes in the corresponding balance (e.g., the total change in a given component would be reported as two amounts). Disclosure of reclassification adjustments in the notes is referred to as the "net method." For financial statement presentation purposes under this method, reclassification adjustments are reported with other changes as a single amount in the component of OCI.

After the Adoption of ASU 2013-02

ASC 220-10-45-17, as amended by ASU 2013-02, states, in part:

An entity shall separately provide information about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income if those amounts all are required under other [U.S. GAAP] to be reclassified to net income in their entirety in the same reporting period. An entity shall provide this information together, in one location, in either of the following ways:
a. On the face of the statement where net income is presented
b. As a separate disclosure in the notes to the financial statements.

As stated in ASC 220-10-45-17A, entities that use method (a) above should present parenthetically (1) "by component of other comprehensive income the effect of significant reclassification amounts on the respective line items of net income" and (2) "the aggregate tax effect of all significant reclassifications on the line item for income tax benefit or expense in the statement where net income is presented."

As stated in ASC 220-10-45-17B, entities that use method (b) above, including entities that are precluded from using method (a) because their reclassifications are not entirely to net income for the period, should present in the notes to the financial statements the significant amounts reclassified out of AOCI by each component of AOCI and provide a subtotal of each component of comprehensive income. They also should identify, for each significant amount required to be reclassified to net income in its entirety in the same reporting period, each line item affected on the statement where net income is reflected. For those reclassifications not made to net income in their entirety in the same reporting period, entities should cross-reference to the note that provides additional information about the reclassification.

Under IFRSs, paragraph 94 of IAS 1 indicates that an "entity may present reclassification adjustments in the statement(s) of profit or loss and other comprehensive income or in the notes. An entity presenting reclassification adjustments in the notes presents the items of other comprehensive income after any related reclassification adjustments."

Thus, IFRSs do not include the detailed presentation requirements contained in ASC 220, as amended.

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1 Differences are based on a comparison of authoritative literature under U.S. GAAP and IFRSs and do not necessarily include interpretations of such literature.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.