Accounting: The Language of Business - Vol. 2 (Intermediate: Part 58)

The colossal mess in Vatican finances that [Pope] Francis inherited has been cleaned up, and cleaned out. Real budgeting and accounting procedures are in place; so are real professionals, not somebody's nephew.

George Weigel

Statements of Net Income and Comprehensive Income (Part M)

by

Charles Lamson

Statement of Comprehensive Income Elements: International Financial Reporting Standards (IFRS)

The presentation of the statement of comprehensive income is similar under U.S. GAAP and IFRS---but the line items (items that appear on a separate line) can vary, depending on whether the standard setter allows certain items to go through OCI [Other comprehensive income (OCI) includes revenues, expenses, gains, and losses that have yet to be realized and are excluded from net income on an income statement. OCI represents the balance between net income and comprehensive income (Investopedia).] rather than net income (IASC, International Accounting Standard I, “Presentation of Financial Statements,” Paragraph 7). In addition to the three items that go through other comprehensive income under U.S. GAAP, IFRS also allows companies to revalue long-lived assets and include the upward revaluations in OCI.

Statement of Comprehensive Income Format

We established in Part 57 that companies can present the elements of OCI in a separate statement or combined with the elements of net income into one statement. In the two statement approach, companies first present the statement of net income, followed by a separate statement of comprehensive income. The statement of comprehensive income begins with net income and then presents the elements of OCI to arrive at comprehensive income for the period. In the one statement approach, companies first present the elements of net income followed by the elements of OCI, netting to the comprehensive income for the period.

Companies may apply the tax effects to the OCI items in total or to each individual item comprising other comprehensive income. The majority of companies use the two-statement approach. With the two statement approach, net income retains its emphasis as the primary income measure.

As we will discuss in a later post, the standards require companies to report the accumulated balance of other comprehensive income in the stockholders' equity section of the balance sheet. The codification presents examples of the income statements under both approaches. We extend the Puppini Products income statement example from Exhibit 5.6 in Part 49 to include other comprehensive income. Exhibit 5.15 presents the two statement approach, and Exhibit 5.16 presents the one statement approach. Notice that net income and other comprehensive income are the same in both exhibits; only the presentation and formatting differ.

Exhibit 5.15 Statements of Net Income and Comprehensive Income: Two-Statement Approach

EXHIBIT 5.16 Statement of Comprehensive Income: One Statement Approach

Exhibit 5.8 (from Part 49 and reintroduced below) and 5.17 (below) illustrate Kimberly-Clark's use of the two-statement approach. Note that its statement of comprehensive income begins with net income from its statement of net income in Exhibit 5.8. Two main other comprehensive income items in 2016 are $(107) million of loss from foreign currency translation adjustments and loss of $(113) million from post retirement adjustments. Each of these items is reported net of tax. In all years presented, Kimberly-Clark's comprehensive income attributable to stockholders was lower than its net income.

EXHIBIT 5.8 Income Statement, Kimberly-Clark Corporation, Financial Statement, December 31, 2016 (https://www.kimberly-clark.com/-/media/kimberly/pdf/annual-report/kmb-2016-10k_umbracofile.pdf)

EXHIBIT 5.17 Statement of Comprehensive Income, Kimberly-Clark Corporation, Financial Statement, December 31, 2016

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 195-198*

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