Financial statements provide information about a company’s financial health and the core purpose of reporting Comprehensive Income is to provide stakeholders with a complete understanding of a company’s financial position.

Comprehensive income is an accounting term that represents the total change in a company’s equity from all sources, including those not captured in the net income and is a combination of Profit & Loss Accounts and Other Comprehensive Income (OCI).

Other Comprehensive Income presented as a separate section in the financial statements, following the income statement and accompanied by net income and OCI directly affects shareholders’ equity, as it represents changes in the overall value of the company’s assets and liabilities.

How to Calculate Comprehensive Income

The formula for calculating comprehensive income:

• Comprehensive Income = Net Income + Other Comprehensive Income

Example:

ABC Company reports a net income of $600,000 for the year and additional information as below:

1. Unrealized gain on a foreign investment $ 50,000
2. Foreign currency translation loss $ 30,000

Comprehensive Income = Net Income + Other Comprehensive Income

$600,000 (net income) + $50,000 (OCI gain) – $30,000 (OCI loss) = $620,000.

International Accounting Standard 1 – Presentation of Financial Statements

International Accounting Standard 1 ‘Presentation of Financial Statements’ sets out requirements for the presentation of financial statements and requires an entity to present a complete set of financial statements as follows:

• a statement of financial position.
• a statement of profit and loss and other comprehensive income for the period. Other comprehensive income is those items of income and expense that are not recognised in profit or loss in accordance with IFRS Standards. IAS 1 allows an entity to present a single combined statement of profit and loss and other comprehensive income or two separate statements.
• a statement of changes in equity.
• a statement of cash flows.
• notes and summary of significant accounting policies; and
• a statement of financial position as at the beginning of the preceding comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

IFRS and U.S. GAAP

IFRS and U.S. GAAP both requires to present a Comprehensive income and presented in a separate statement of comprehensive income or as an additional section in the income statement.

The other comprehensive income section should present line items for the following as per IAS 1.

items of other comprehensive income, classified by nature and grouped into those that, in accordance with other IFRSs:

• will not be reclassified subsequently to profit or loss; and
• will be reclassified subsequently to profit or loss when specific conditions are met.

Components of Other Comprehensive Income

• Revaluation of property, plant and equipment and intangible assets as per IAS 16, Property, Plant and Equipment & IAS 38, Intangible Assets.
• Remeasurement of employee defined benefit plans, e.g., actuarial gains and losses, as per IAS 19, Employee Benefits.
• Gains and losses arising from translating the financial statements of a foreign operation as per IAS 21, Effects of Changes in Foreign Exchange Rates.
• Gains and losses from investments in equity instruments designated at fair value through other comprehensive income as per IFRS 9, Financial Instruments.
• Gains and losses of financial assets having specified payment of principal and interest held to collect contractual cash flows and to sell as per IFRS 9, Financial Instruments.
• The effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and losses on hedging instruments that hedge investments in equity instruments measured at fair value through other comprehensive income as per IFRS 9, Financial Instruments.

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Final Thought

Other comprehensive income (OCI) is a vital component of a company’s financial statements that provides valuable insights for the management and investors. The purpose of OCI is to provide detailed information about all changes in a company’s equity from one period to another. This allows investors and stakeholders to better understand the financial position of the company. It is also extremely helpful in budgeting & forecasting because unrealized gains and losses can be indicative of future realized gains or losses.

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, CA Articles from Big 4, Certified Forensic Accountant (USA), Six Sigma & Oracle Certified.

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a Tax and IFRS coach and the founder of accountingblogger.com