Introduction
The ongoing convergence of the US GAAP and the IFRS accounts reporting standards aims at providing standardized financial statements for US firms applicable internationally. These standardized financial statements will assist in further clarifying and predicting cash flow trends and hence offer international stakeholders the opportunity to appraise companies’ liquidity devoid of much ambiguity. To this end, the FASB under the ASU No. 2011-05 (Topic 220) has issued fresh guidelines for items reported in other comprehensive income (OCI) accounts, previously reconciled under the stockholders’ equity. This report thus outlines the major areas covered by the June 2011 amendment.
The new FASB Accounting Standards Update (ASU) No. 2011-05, Presentation of Comprehensive Income (Topic 220), are in essence meant to harmonize IFRS rules to US GAAP standards in terms of similarity, uniformity, and clarity in financial reporting and to enhance the significance of items presented in other comprehensive income (OCI). The amendments will commence from December 15, 2011 applied retrospectively, nonetheless, non-public entities have the option of adoption after December 2012.
OCI Amendments
Under ASU No. 2011-05 (Topic 220), the OCI has undergone several amendments aimed at harmonizing the IFRS and US GAAP standards. The new guidelines oblige all entities reporting other comprehensive income present corrections for non-directors within stockholders’ equity in either of two available alternatives. Thus, ccompanies now have the option of either issuing a single-statement report covering both the total income and other comprehensive income, or alternatively two separate statements detailing net income on one hand and another with OCI streams. The two-statement process necessitates companies reconcile or depict net income and total net income singularly while detailing items of other comprehensive income separately. The two-statement approach was a compromise between the FASB and IASB to better harmonize the two sets of standards with the convergence easing the disparities presently manifest.
The single-statement approach allows items under other comprehensive income presented below net income plus the total for comprehensive income. The two-statement approach however allows separate statements presentation for net income and comprehensive income but still must be issued consecutively. Nevertheless, in line with IFRS guidelines, entities must fully disclose items re-categorized from other comprehensive income to the net income in the financial statement presentation. More significantly, the option of an alternative two-statement approach still obliges companies to present other comprehensive income (OCI) and total comprehensive income immediately after the net income with a total for the comprehensive income.
Currently, the U.S. GAAP rules permit three options on reporting other comprehensive income including presentation as an account of amendments to stockholders’ equity while not offering the option of dual reporting of net income. Likewise, the presentation of amendments from other comprehensive income is non-existent. These alternatives will be abolished under the new rules, and just limited to the two above options whereby the alternative applied is delineated in the report. Nevertheless, there are still some divergent issues that have not been integrated under the ASU No. 2011-05 (Topic 220) including some items in the comprehensive income statements.
Conclusion
The fresh FASB ASU No. 2011-05 (Topic 220) compliance rule issued in conformity with the IFRS standards will thus enhance convergence of the US GAAP to the IFRS standards. The rule will accordingly ensure the financial statements are in tandem especially about issues of reported income under other comprehensive income. Accordingly, under paragraphs 220-10-45-17, 220-10-55-7 through 55-9, and 220-10-55-18, OCI reporting has been revised in this update.