Heads Up — FASB proposes new disclosures for reclassification adjustments out of AOCI

Published on: 21 Aug 2012

Download PDFAugust 21, 2012
Volume 19, Issue 19

by Stuart Moss and Brad Humpal, Deloitte & Touche LLP


Last week, the FASB issued a proposed ASU1 that would expand the disclosure requirements for items reclassified out of accumulated other comprehensive income (AOCI). The proposal, which aims to give users of financial statements better information about the effect of such reclassification adjustments without imposing a significant burden on financial statement preparers, focuses solely on new disclosures. Thus, it would not amend the current requirements for the reporting of net income or other comprehensive income (OCI) in the financial statements.

Comments on the proposed ASU are due by October 15, 2012. If the FASB finalizes the proposal (which it expects to do by the end of this year), the new guidance would affect both public and nonpublic entities that report items of OCI in any period presented.

Editor’s Note: The proposed ASU represents the Board’s next step toward increasing the transparency of reclassification adjustments, a process that began with
ASU 2011-05.2 Issued last year, ASU 2011-05 revised the manner in which entities present comprehensive income in their financial statements. Among the ASU’s new provisions was a requirement for entities to present reclassification adjustments out of AOCI by component in both the statement in which net income is presented and the statement in which OCI is presented. However, constituents preparing to adopt the ASU raised concerns about whether its presentation requirements for reclassification adjustments were operational. As a result, the FASB issued ASU 2011-12,3 which indefinitely deferred the presentation requirements under ASU 2011-05 for reclassification adjustments and allowed the FASB to redeliberate the matter. Ultimately, the FASB decided not to reinstate the reclassification adjustments provisions under ASU 2011-05.

Overview of the Proposals

The proposed ASU would require entities to disclose additional information about reclassification adjustments in two separate tables: one reflecting changes in AOCI, and the other reflecting items reclassified out of AOCI.

Tabular Disclosures of Changes in AOCI

The proposed guidance would expand the current requirements under U.S. GAAP for the presentation of changes in AOCI. ASC 2204 requires entities to present “on the face of the financial statements or as a separate disclosure in the notes, the changes in the accumulated balances for each component of other comprehensive income included in that separate component of equity.” Under the proposed ASU, entities would disaggregate the total change of each component of OCI (e.g., foreign currency items and gains and losses on cash flow hedges) and separately present (1) current period reclassification adjustments and (2) the remainder of OCI for the period. The disclosure would also include a subtotal for the changes in the accumulated balances (i.e., total OCI of each component for the period). Either before-tax or net-of-tax presentation would be permitted.

Tabular Disclosure of Items Reclassified Out of AOCI

Under the proposal, entities would disclose “significant items” reclassified out of each component of AOCI, along with a subtotal for those significant items, in a separate table. Totals for each component displayed in the table would need to be consistent with the amounts presented in the “changes in AOCI” disclosure discussed above. Amounts would be presented on a before-tax or net-of-tax basis provided the presentation method is “consistent with the entity’s method of presentation for the line items in the statement where net income is presented.”

In addition, for significant reclassification adjustments, the proposal would require entities to disclose the affected financial statement line item in the statement in which net income is presented (i.e., the comprehensive income statement under a single-statement approach, or the income statement under a two-statement approach). This requirement would be limited to amounts that are reclassified into net income in their entirety.

Editor’s Note: Under U.S. GAAP, entities do not immediately recognize all reclassification adjustments from AOCI in net income. For example, under ASC 715,5 portions of defined benefit pension costs are amortized to net periodic pension cost. In turn, entities may immediately recognize a portion of net periodic pension cost in net income and initially capitalize other portions on the balance sheet. Accordingly, under the proposed ASU, entities would not need to disclose information about the affected line item for such amounts. However, they should include cross-references, as applicable, to other disclosures that discuss such items (e.g., the pension footnote).

See the appendix of this Heads Up for examples of both types of proposed disclosures.

Interim-Period Reporting

The proposed ASU does not change the current requirements under U.S. GAAP for interim financial statement reporting of comprehensive income. That is, a total for comprehensive income must be reported in condensed interim financial statements in either (1) a single continuous statement or (2) two separate but consecutive statements. However, entities would need to include the new disclosures required by the proposed ASU in their reporting for both interim and annual periods.

Effective Date and Transition

The FASB will determine effective dates for the final guidance after deliberating the proposal’s questions for respondents. The Board has requested feedback about the practicability of making the disclosures effective for public entities for annual reporting periods ending after December 15, 2012 (i.e., for the upcoming year-end reporting cycle for calendar year-end public entities), as well as allowing a one-year deferral for nonpublic entities. The final standard would be applied prospectively, with early adoption permitted.

Appendix — Illustrative Examples

The examples below, adapted from the proposed ASU, illustrate the additional disclosures that would be required for (1) changes in AOCI (by component) and (2) reclassifications out of AOCI.

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1 FASB Proposed Accounting Standards Update, Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income.

2 FASB Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income.

3 FASB Accounting Standards Update No. 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.

4 FASB Accounting Standards Codification Topic 220, Comprehensive Income.

5 FASB Accounting Standards Codification Topic 715, Compensation — Retirement Benefits.


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