What is other comprehensive income?

Other comprehensive income is those revenues, expenses, gains, and losses under both Generally
Accepted Accounting Principles and International Financial Reporting Standards that are excluded from
net income on the income statement. This means that they are instead listed after net income on the
income statement.

Revenues, expenses, gains and losses appear in other comprehensive income when they have not yet
been realized. Something has been realized when the underlying transaction has been completed, such
as when an investment is sold. Thus, if your company has invested in bonds, and the value of those
bonds changes, you recognize the difference as a gain or loss in other comprehensive income. Once you
sell the bonds, you have then realized the gain or loss associated with the bonds, and can then shift the
gain or loss out of other comprehensive income and into a line item higher in the income statement, so
that it is a part of net income.

Examples of items that may be classified in other comprehensive income are:

Unrealized holding gains or losses on investments that are classified as available for sale
Foreign currency translation gains or losses
Pension plan gains or losses
Pension prior service costs or credits

It is acceptable to either report components of other comprehensive income net of related tax effects,
or before related tax effects with a single aggregate income tax expense or benefit shown that relates to
all of the other comprehensive income items.

Other comprehensive income is designed to give the reader of a company's financial statements a more
comprehensive view of the financial status of the entity, though in practice it is possible that it
introduces too much complexity to the income statement.

Total comprehensive income is the combination of profit or loss and other comprehensive income.

Other Comprehensive Income

Definition of Other Comprehensive Income

Other comprehensive income contains all changes that are not permitted to be included in profit or loss.
It is particularly valuable for understanding ongoing changes in the fair value of a company's assets.
Items that you should insert in other comprehensive income include:

Available-for-sale securities fair value changes that were previously written down as impaired
Available-for-sale securities unrealized gains and losses
Cash flow hedge derivative instrument gains and losses

Debt security unrealized gains and losses arising from a transfer from the available-for-sale category
to the held-to-maturity category
Foreign currency gains and losses on intra-entity currency transactions where settlement is not
planned or anticipated in the foreseeable future
 Foreign currency transaction gains and losses that are hedges of an investment in a foreign entity
Foreign currency translation adjustments
Pension or post-retirement benefit plan gains or losses
Pension or post-retirement benefit plan prior service costs or credits
Pension or post-retirement benefit plan transition assets or obligations that are not recognized as a
component of the net periodic benefit or cost

It is acceptable to either report components of other comprehensive income net of related tax effects,
or before related tax effects with a single aggregate income tax expense or benefit shown that relates to
all of the other comprehensive income items.

The items to be included in this classification may be only rarely encountered by a smaller business, so
this type of organization may only occasionally report other comprehensive income.

Example of Other Comprehensive Income

An example of a possible format for reporting other comprehensive income in the income statement is:
You should list the total of other comprehensive income for each reporting period to a component of
equity that is displayed separately from retained earnings and additional paid-in capital in the balance
sheet, and call it accumulated other comprehensive income. An example showing the placement of this
line item within the equity section of an entity’s balance sheet follows:
Equity:
Common stock $1,000,000
Paid-in capital 10,000
Retained earnings 450,000
Accumulated other comprehensive income 25,000
Total equity $1,485,000

Additional Issues Related to Other Comprehensive Income

If an item listed in other comprehensive income becomes a realized gain or loss, you then shift it out of
other comprehensive income and into net income or loss. This can happen, for example, when you sell
an investment security for which you already recorded an unrealized gain in other comprehensive
income. At the point of sale, this is now a realized gain, which shifts into net income. A company can
display this reclassification adjustment either on the face of the financial statements, or in the
accompanying notes.

Total comprehensive income is the combination of profit or loss and other comprehensive income.
http://pwc.blogs.com/ifrs/2009/09/what-exactly-is-other-comprehensive-income.html
What exactly is ‘other comprehensive income’?
11 September 2009

Many companies with December year ends have by now completed their half-year reporting cycle and
are more familiar with the new presentation requirements introduced in IAS 1 (Revised). In many cases,
the changes have been cosmetic – an extra line item here and an additional disclosure there – but we
have to remember that this is only a step in the IASB’s financial statement presentation journey.

One of the new concepts introduced this year is the notion of other comprehensive income (OCI). This
might appear in a separate statement (looking rather similar to its predecessor – the statement of
recognised income and expense) or towards the bottom of a single performance statement – a
statement of comprehensive income.
What is OCI? This is an extremely difficult question to answer. The following are examples of items that
IFRS either permits or requires to be presented as OCI:

• Foreign currency translation adjustments on foreign subsidiaries

There is no obvious principle that drives these gains and losses out of earnings and into OCI. They all
reflect re-measurements as a result of movements in a price or valuation, but so do some items that are
unquestionably included within earnings (such as fair value gains and losses on traded derivatives and
investment properties). There is also the question of recycling.

Some of these items (such as foreign currency translation adjustments and changes in the fair value of
available-for-sale financial assets) are recognised in OCI but are then recognised again in earnings when
the underlying item (that is, the foreign subsidiary or available-for-sale financial asset) is sold or realised.
In other cases (such as actuarial gains and losses and revaluations of property, plant and equipment)
there is no recycling.

Items that historically have been recorded outside of earnings have largely been addressed piecemeal in
order to resolve specific issues. A recent example has been the proposed treatment of equity
investments in July’s exposure draft on financial instruments classification and measurement. However,
in that particular case the IASB highlighted the complexity of the issue when it commented that “it
would be difficult, and perhaps impossible, to develop a clear and robust principle that would identify
investments that are different enough in nature to justify a different presentation requirement”.

This might explain why the IASB has not, in its financial statement presentation project or separately,
addressed the following fundamental questions: What is the purpose of OCI and its separation from
earnings? Which gains and losses on re-measurement to fair value should be reported in earnings and
which in OCI? Which items, if any, should be recycled?

Is pragmatism the right approach, or should the IASB initiate a separate project to address these issues
as a matter of priority?