Other comprehensive income, or OCI, is the revenues, expenses, gains and losses that are included in comprehensive income but excluded from net income under generally accepted accounting principles (FASB Accounting Standards Update 2011-05, paragraph 220-10-55-6). It is an amount measured across a reporting period, not a balance stated at a date. Comprehensive income for that period is net income plus other comprehensive income.
Topic 220 divides comprehensive income into those two sections (FASB Accounting Standards Update 2011-05, paragraph 220-10-45-1A). Where the line between them falls, and why a gain can be real and still sit outside the bottom line, is worked through in net income. The equity balance these period amounts accumulate into is AOCI.
The Two Presentation Formats
An entity reports comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements (FASB Accounting Standards Update 2011-05, paragraph 220-10-45-1).
In the single continuous statement, the components are presented in two sections, net income and other comprehensive income, and the statement carries a total for net income with the components that make it up, a total for other comprehensive income with its components, and total comprehensive income (paragraph 220-10-45-1A).
In the two-statement approach, the statement of net income carries the components and the total for net income. The statement of other comprehensive income is presented immediately after it and carries the components and total for other comprehensive income together with a total for comprehensive income, and that second statement may begin with net income (FASB Accounting Standards Update 2011-05, paragraph 220-10-45-1B).
A third route used to exist and no longer does. The Board eliminated the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity (FASB Accounting Standards Update 2011-05, Summary), so an explanation that still shows the components tucked inside the equity statement is describing a presentation that was removed.
The bottom of a single continuous statement resolves like this, with the components shown net of tax.
Net income 79,000
Other comprehensive income
Foreign currency translation adjustment 4,000
Unrealized holding gain on available-for-sale
debt securities, net of tax 2,500
Total other comprehensive income 6,500
Comprehensive income 85,500Only the middle block is other comprehensive income. The top line is the whole income statement resolved into one figure, and the bottom line is the two totals added together.
Net of Tax or Before Tax
The components can be shown either way, and the choice belongs to the entity. Components of other comprehensive income are presented in the statement in which other comprehensive income is reported either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items (FASB Accounting Standards Update 2011-05, paragraph 220-10-45-11).
Choosing the before-tax presentation does not make the per-component tax disappear. It moves it, because the tax allocated to each component still has to be presented or disclosed, and that requirement sits with the disclosure of changes in each accumulated balance in AOCI.
Where a Firm Meets Other Comprehensive Income
A client with no items in the section does not report it at all, and the standard says so directly. Topic 220 does not apply to an entity that has no items of other comprehensive income in any period presented, and such an entity is not required to report other comprehensive income or comprehensive income (FASB Accounting Standards Update 2011-05, paragraph 220-10-15-3).
So the first question at the close is not which format to use. It is whether the client holds anything that lands in the section at all. Available-for-sale debt securities, foreign operations, cash flow hedges and defined benefit plans are what put it there, and the component list with its citation is in AOCI. Which fair value changes run through earnings instead is in mark to market.
The wording on the face of the statement is not fixed either, which matters when you are reading a client’s prior-year financials rather than preparing them. Topic 220 does not require an entity to use the terms comprehensive income or other comprehensive income in its statements, and an equivalent term such as total nonowner changes in equity can be used as the label for comprehensive income (FASB Accounting Standards Update 2011-05, paragraphs 220-10-45-4 and 220-10-55-6).
What Other Comprehensive Income Is Not
It is not the accumulated balance. OCI is the period flow and AOCI is the equity balance it feeds, so only the balance appears on the balance sheet, and the mechanism that takes amounts back out of it is in AOCI.
It is also not every movement in equity that skips the income statement. Changes in equity during a period resulting from investments by owners and distributions to owners do not qualify as an item of comprehensive income, and neither do items required to be reported as direct adjustments to paid-in capital, retained earnings or other nonincome equity accounts (FASB Accounting Standards Update 2011-05, paragraph 220-10-45-10B). A dividend and a stock issuance change equity without ever touching this section.
Common Questions
Profit and loss is the income statement, and its total is net income. Other comprehensive income is the section outside that total, so an amount recorded in OCI is absent from profit or loss for the period unless and until it is reclassified into net income later.
A period’s comprehensive income is its net income plus its other comprehensive income. A company that earns net income for the year and also carries an unrealized holding gain on available-for-sale debt securities reports comprehensive income above its bottom line by the amount of that gain, and reports the gain itself in the other comprehensive income section rather than in earnings.
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