What is OCI?
IAS 1 defines a complete set of financial statementsas comprising statements of financial position, comprehensive income (often referred to as P&L or the income statement), cash flows and changes in equity, plus the related explanatory notes. IAS 1 requires all income and expense items to be presented in the statement of comprehensive income.
These items are presented in the profit or loss section of the statement unless an IFRS requires it to be presented in a separate section called other comprehensive income (OCI).
Examples of items that IFRSs require or permit to be presented in OCI are:
- Foreign currency translation adjustments on foreign subsidiaries
- Actuarial gains and losses arising on defined benefit plans
- Revaluations of property, plant and equipment
- Changes in fair value of financial instruments in a cashflow hedge.
Enhanced comparability with US GAAP
US GAAP and IFRSs differ on the presentation of OCI items.
US GAAP does not require OCI items to be presented in the statement of comprehensive income but allows them to be incorporated in the statement of changes in equity or in the notes. This makes it difficult to
identify and understand the nature of those gains and losses. These different approaches also make it difficult for users to compare financial statements prepared in accordance with US GAAP and those prepared in accordance with IFRSs.
The FASB has amended US GAAP to require profit or loss and other comprehensive income to be presented in either one statement or two continuous statements, with items of profit or loss presented separately.
The changes to IAS 1 and US GAAP will make it easier for users to compare the financial statements prepared in accordance with US GAAP with those prepared in accordance with IFRSs.