In brief: FASB to issue a revised proposal on reclassifications from other comprehensive income (No. 2012-16)
In brief
This week the FASB decided to issue an exposure draft requiring new footnote disclosures for reclassifications from accumulated other comprehensive income to net income. In its 2011 standard on the presentation of comprehensive income, the FASB required reclassification adjustments from accumulated other comprehensive income to be measured and presented by income statement line item in net income and also in other comprehensive income on the face of the financial statement. However, responding to concerns from financial statement preparers, the FASB decided to indefinitely defer that requirement pending further outreach. Having completed its outreach, the FASB plans to issue a proposal intended to address preparer concerns while being responsive to financial statement user requests for greater transparency about the impact of reclassification adjustments on net income. This In brief article provides an overview of the FASB's proposal, which is expected to be issued in July.
What's new?
This week the FASB decided to issue an exposure draft requiring new footnote disclosures for reclassifications from accumulated other comprehensive income to net income.
In its 2011 standard on the presentation of comprehensive income,1the FASB required reclassification adjustments from accumulated other comprehensive income to be measured and presented by income statement line item in net income and also in other comprehensive income on the face of the financial statement. However, responding to concerns from financial statement preparers, the FASB decided to indefinitely defer2 that requirement pending further outreach. Refer to In brief 2011-57, FASB finalizes deferral of new presentation requirement for other comprehensive income reclassifications, for further background information.
Having completed its outreach, the FASB plans to issue a proposal intended to address preparer concerns while being responsive to financial statement user requests for greater transparency about the impact of reclassification adjustments on net income.
What are the key provisions?
The exposure draft will propose requiring public and nonpublic companies to present additional information about reclassification adjustments in their interim and annual financial statements.
Most notably, companies would disclose, in a single footnote, the amount reclassified from each component of accumulated other comprehensive income based on its source (e.g., interest rate contracts included in gains and losses on cash-flow hedges) and the income statement line items affected by the reclassification (e.g., interest income and interest expense) using a tabular format. However, companies would not be required to disclose the income statement line items that are affected by pension costs reclassified from accumulated other comprehensive income. The FASB decided to make this exception due to feedback from preparers that they are currently unable to provide this information.
Companies would also disclose the total amount reclassified from each component of accumulated other comprehensive income (e.g., the total amount reclassified from unrealized gains and losses on available-for-sale securities).
Who's affected?
All entities that report items of other comprehensive income could be affected.
What's the proposed effective date?
The exposure draft will not propose an effective date. However, the FASB intends to make these requirements effective as soon as possible, potentially as early as the fourth quarter of 2012 or the first quarter of 2013 for public entities. The FASB plans to ask preparers for input on the time needed to implement these requirements. Nonpublic entities would likely get an additional year to implement these requirements.
What's next?
The exposure draft is expected to be released in July 2012 with a 60-day comment letter period. Thereafter, the FASB will consider constituent input in determining if changes are needed and whether a final standard should be issued.
Questions?
PwC clients who have questions about this In brief should contact their engagement partner. Engagement teams that have questions should contact the Financial Instruments team in the National Professional Services Group (1-973-236-7803).
1 Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income,issued on June 16, 2011.
2. Accounting Standards Update No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.
Authored by:
Donald Doran
Partner
Phone: 1-973-236-5280
Email: donald.a.doran@us.pwc.com
Craig Cooke
Director
Phone: 1-973-236-4706
Email: craig.cooke@us.pwc.com
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