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Concept Version 5
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Other Comprehensive Income

Accumulated Other Comprehensive Income (AOCI) is all the changes in equity other than transactions from owners and distributions to owners.

Learning Objective

  • Summarize the purpose of the comprehensive income section on the financial statement


Key Points

    • Other comprehensive income is comprised of several gains and losses that are not disclosed in the income statement and which relate to available for sale securities, foreign currency translation, derivatives, pension plans, and revaluation of assets.
    • The AOCI balance is presented as a line item in the stockholder's equity section of the balance sheet.
    • The individual components of AOCI can be presented in a separate statement of comprehensive income or a separate section for comprehensive income within the income statement.

Terms

  • hedge

    Contract or arrangement reducing one's exposure to risk (for example, the risk of price movements or interest rate movements).

  • IFRS

    International Financial Reporting Standards; designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.


Full Text

Definition of Other Comprehensive Income

Other comprehensive income, disclosed in the stockholder's equity section, is the total non-owner change in equity for a reporting period or all the changes in equity other than transactions from owners and distributions to owners. Most changes to equity, such as revenues and expenses, appear in the income statement. A few gains and losses are not shown in the income statement since they are not closed to retained earnings. They are disclosed in the shareholder equity section of the balance sheet known as "accumulated other comprehensive income" .

Stakeholders that use financial statements.

Other comprehensive income can be reported in its own statement of comprehensive income or in a separate section within the income statement.

Components of Other Comprehensive Income

Other comprehensive income is comprised of the following items:

  • Unrealized gains and losses on available for sale securities (debt and equity)
  • Gains and losses on the effective portion of derivatives held as cash flow hedges
  • Gains and losses resulting from the translation of the financial statements of foreign subsidiaries from the foreign currency to the reporting currency
  • Actuarial gains and losses on recognized defined benefit pension plans (minimum pension liability adjustments)
  • Changes in the revaluation surplus account (this account records changes between the market and book value of fixed assets on the balance sheet)

The accumulated other comprehensive income balance is presented as a line item in the stockholder's equity section of the balance sheet. The individual components of the balance can be presented in a separate statement of comprehensive income or a separate section for comprehensive income within the income statement.

Other Comprehensive Income and IFRS

All items of income and expense recognized in a period must be included in profit or loss unless a standard or an interpretation requires otherwise. Some IFRSs (international financial reporting standards) require or permit that some components be excluded from the income statement and instead be included in other comprehensive income.

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