Comprehensive Income Reporting

The gain or loss resulting from the revaluation of balance sheet accounts is considered a component of comprehensive income.

As a result, it falls under the financial reporting standards established in Financial Accounting Standards Board (FASB) Statement 130: Reporting Comprehensive Income.

FASB 130 defines comprehensive income as net income plus "other comprehensive income" (OCI). OCI represents changes in stockholders’ equity from events that are recorded directly on the balance sheet and, as a result, bypass the income statement. (Though this topic focuses on income from foreign currency exchange, you can also set up other OCI categories in Costpoint in accordance with your company’s policies and practices.)

To comply with FASB 130, you must report on items that are components of comprehensive income in a financial statement that is equal in "prominence" to your other financial statements. However, the FASB does not require a specific format for that financial statement. Costpoint supports two of the possible formats that the FASB suggests:

• Combined statement of net income and comprehensive income

  For the combined statement of net income and comprehensive income, Costpoint adds a comprehensive income section at the end of the traditional income statement.

  The advantage of this approach is that it discloses both net income and comprehensive income in a single statement. The primary disadvantage is that net income becomes a subtotal on the statement, and comprehensive income becomes the new bottom line. This reduces the prominence of net income as the principle measure of a company’s performance and may cause confusion among some financial statement users about "true earnings." Other possible disadvantages are that Costpoint controls how the comprehensive income information is presented on the income statement, and you cannot add financial statement lines for other categories of OCI.

• Separate statement of comprehensive income

  A second method for reporting comprehensive income is to disclose it in a separate financial statement. You specify the rows for the OCI detail that you want on the statement and the income statement from which you want Costpoint to retrieve net income. When you generate the statement, Costpoint automatically brings in the net income amount and calculates total OCI and total comprehensive income.

  One advantage of this approach is that your income statement is free of potentially distracting disclosures of comprehensive income. Companies that view net income as the more meaningful performance measure can use this approach because it does not change the income statement. Other advantages are that you have much more control of the report layout than you do if you include comprehensive income on the income statement. In addition, you can add lines for OCI categories other than that for gains and losses from balance sheet revaluation. Some firms, for example, add a line for a pension liability adjustment account. The primary disadvantage of the separate statement is that it adds another report to the traditional set of financial statements.