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FASB's Recent and Proposed Changes
More than a decade ago, FASB published the landmark Statement of Financial Accounting Standard (SFAS) 130, Reporting Comprehensive Income, which is now codified in Accounting Standards Codification (ASC) Topic 220, "Comprehensive Income." Comprehensive income is defined as "the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners" (ASC Glossary).
In SFAS 130, FASB introduced the term "other comprehensive income" (OCI) to better reflect certain revenues, expenses, gains, and losses - elements of comprehensive income that are excluded from net income under U.S. GAAP. In a nutshell, comprehensive income is much broader than net income; it consists of net income plus OCI. Net income is the bottom line on the income statement, whereas OCI items bypass net income and flow directly to stockholders' equity as a separate component Companies that do not have OCI in a given period do not have to report comprehensive income (ASC 220-10-15-3A).
Under SFAS 130, FASB permitted the following three alternatives for presenting comprehensive income:
* Components of OCI and total comprehensive income can be reported below net income, in a single statement showing the results of operations for the period (ASC 220-10-45-1A); this is the method preferred by FASB.
* A separate statement of comprehensive income, beginning with net income, can be reported.
* Comprehensive income can be reported in the statement of stockholders' equity.
FASB attempted to balance the needs of both financial statement preparers and users, and there has been significant debate within the accounting profession over how to best present comprehensive income, net income, and OCI. For example, some argue that because OCI items are usually unrelated to the core business or are due to unrealized gains and losses, it is preferable to isolate them from net income because it prevents excessive and uninformative volatility in earnings. In contrast, others believe that separating the effects of OCI on comprehensive income reduces investors' focus on events or transactions that might materially affect a company's equity. In addition, the number and complexity of items reported as OCI under U.S. GAAP...