What is a statement of comprehensive income? The statement of comprehensive income is one of the components of a complete set of financial statements, along with the statement of financial position (balance sheet), statement of cash flows, statement of changes in equity, and notes to financial statements. A separate presentation of income statement and a statement of comprehensive income can also be used instead of a single statement of comprehensive income. After the amendment of International Accounting Standard (IAS) 1 in 2007, the term statement of comprehensive income is used instead of the income statement. However, income statement is retained in case of a two-statement approach.
An entity has a choice of presenting (a) a single statement of comprehensive income or
(b) two statements showing an (b1) income statement displaying components of profit or loss and a (b2) statement of comprehensive income that begins with profit or loss (bottom line of the income statement) and displays components of other comprehensive income (IAS 1.81). The statement of income is also known as the statement of financial performance, because it shows if the company or entity is earning profit or incurring losses. It is in this statement where you can have a clearer view of the business or entity’s profitability for a period of time (e.g., for the year ended December 31, 2010).
What are included in the statement of comprehensive income?
The statement of comprehensive income includes profit or loss for a period plus other comprehensive income recognized in that period. The components of “other comprehensive income” include:
a. changes in revaluation surplus (IAS 16 and IAS 38)
b. actuarial gains and losses on defined benefit plans recognized in accordance with IAS 19
c. gains and losses arising from translating the financial statements of a foreign operation (IAS 21)
d. gains and losses on remeasuring available-for-sale financial assets (IAS 39)
e. the effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39).
Items included on the face of statement of comprehensive income
If applicable, the minimum items that should be included on the face of the statement of comprehensive income are the following (IAS 1.82):
b. finance costs
c. share of the profit or loss of associates and joint ventures accounted for using the equity method
d. tax expense
e. a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognized on the disposal of the assets or disposal group(s) constituting the discontinued operation
f. profit or loss
g. each component of other comprehensive income classified by nature
h. share of the other comprehensive income of associates and joint ventures accounted for using the equity method
i. total comprehensive income
The following items must also be disclosed in the statement of comprehensive income as allocations for the period, when applicable (IAS 1.83):
a. profit or loss for the period attributable to non-controlling interests and owners of the parent
b. total comprehensive income attributable to non-controlling interests and owners of the parent
Additional line items may be needed to fairly present the entity’s results of operations. Extraordinary items are not presented anymore in the statement of comprehensive income or in the income statement.
Expenses recognized in profit or loss are analyzed either by nature (raw materials, staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc) (IAS 1.99). If an entity categorizes by function, then additional information on the nature of expenses – at a minimum depreciation, amortization and employee benefits expense are disclosed (IAS 1.104).
What are the purpose and the uses of statement of comprehensive income?
The statement of comprehensive income shows the details of the comprehensive income, that is, the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. These items are not part of net income, yet are important enough to be included in comprehensive income, giving the user a bigger, more comprehensive picture of the company or entity as a whole. Comprehensive income gives the users of the financial information the ability to measure the sum total of all operating and financial events that have changed the value of an owner’s interest in a business. This ability is vital to business owners and investors. Other users, such as creditors, government authorities and other interested parties also look on the statement of comprehensive income to determine the profitability of a business for a certain period of time or calendar year. For example, the taxing authority will examine the entity’s statement of income to determine the correctness of its income tax due or payable to the government.
To see sample audited statements of comprehensive income of public listed companies in the Philippines, please visit this post.