The Financial Accounting Standards Board has released an updated accounting standard for reporting amounts reclassified out of accumulated other comprehensive income.
Accounting Standards Update No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” aims to improve the transparency of reporting reclassifications out of accumulated other comprehensive income.
Other comprehensive income includes gains and losses initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income.
The amendments in the update do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that the update requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP.
The new amendments will require an organization to present—either on the face of the statement where net income is presented or in the notes—the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period
Organizations will also be required to cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items that are not required under U.S. GAAP, to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account, such as inventory for pension-related amounts, instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods, both on an interim and annual basis.
A private company is required to meet the reporting requirements of the amended paragraphs about the roll-forward of accumulated other comprehensive income for both interim and annual reporting periods. However, private companies are only required to provide the information about the impact of reclassifications on line items of net income for annual reporting periods, not for interim reporting periods.
“This update requires preparers to report information on reclassifications out of accumulated other comprehensive income in a format that makes the effects more transparent,” said FASB chairman Leslie F. Seidman in a statement. “The update improves reporting in a manner that enhances reporting for users of financial statements, without imposing significant costs to preparers of financial statements.”
The amendments are effective for reporting periods beginning after Dec. 15, 2012, for public companies and are effective for reporting periods beginning after Dec. 15, 2013, for private companies.