On August 16, 2012, the FASB issued an exposure draft requiring new footnote disclosures for reclassifications from accumulated other comprehensive income to net income. The FASB believes its proposed footnote disclosures balance preparer concerns for a practical approach with financial statement users need for greater transparency about the impact of reclassification adjustments on net income. Comments on the exposure draft are due October 15, 2012. This In brief article provides an overview of the exposure draft.
On August 16, 2012, the FASB issued 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 income1, 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, in response to financial statement preparers concerns, the FASB indefinitely deferred2 this 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.
The FASB believes its proposed footnote disclosures balance these preparer concerns for a practical approach with the financial statement users need for greater transparency about the impact of reclassification adjustments on net income.
The exposure draft proposes that public and non-public companies be required to present additional information about reclassification adjustments from accumulated other comprehensive income in their interim and annual financial statements.
Most notably, companies would be required to disclose, in a single footnote, a table showing the amount reclassified from each component of accumulated other comprehensive income based on its source (e.g., the release due to cash flow hedges from interest rate contracts) and the income statement line items affected by the reclassification (e.g., interest income or interest expense). The income statement line item affected would only need to be shown for components required to be reclassified to net income in their entirety. If a component is not required to be reclassified to net income in its entirety (e.g., the net periodic pension cost), companies would instead cross reference to the related footnote for additional information (e.g., the pension footnote).
All public and non-public companies that report items of other comprehensive income could be affected. Not-for-profit organizations are exempt from the new requirements.
The FASB has not determined an effective date. However, the FASB has indicated its preference to make the final standard effective for public companies for annual reporting periods ending after December 15, 2012, with non-public companies adopting the standard one year later. The FASB is seeking comments as to whether this effective date allows preparers sufficient time to prepare.
Comments on the FASB's exposure draft are due October 15, 2012.
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).
1Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, issued on June 16, 2011
2Accounting 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.
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