Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood
ASC 220‐10, Overall
Format of Statement of Income and Comprehensive Income In the period they are recognized, entities must present all items that meet the definition of comprehensive income:
In a combined statement of income and comprehensive income, or
In two separate, but consecutive statements.(ASC 220‐10‐45‐1C)
Exhibit 5.1 Items Required to Be Displayed in Either Acceptable Format of the Statement of Comprehensive Income
| Reporting Comprehensive Income | |
|---|---|
| Single Continuous Statement of Net Income and Comprehensive Income | Two Separate but Consecutive Statements |
| Show:Components of net incomeTotal net incomeComponents of other comprehensive incomeTotal of other comprehensive incomeTotal comprehensive income | In the statement of net income show:Components of net incomeTotal of net incomeIn the statement of comprehensive income presented immediately after the statement of net income begin with net income and show:Components of other comprehensive incomeTotal of other comprehensive incomeTotal of comprehensive income |
| (ASC 220‐10‐45‐1A) | (ASC 220‐10‐45‐1B and 45‐1C) |
Entities with an Outstanding Noncontrolling Interest In addition to presenting consolidated net income and comprehensive income, entities with an outstanding noncontrolling interest are required to report the following items in the financial statement in which net income and comprehensive income are presented:
Amount of net income and comprehensive income attributable to the parent.
Amount of net income and comprehensive income attributable to the noncontrolling interest in a less‐than‐wholly‐owned subsidiary.(ASC 220‐10‐45‐5)
The Order of Presentation and Headings The basic order of presentation of information in an income statement (or statement of income and comprehensive income) is defined by other accounting topics, as shown in Example 5.1 later in this chapter. Other than in the section “income from continuing operations,” the display of revenues, expenses, gains, losses, and other comprehensive income is predetermined by the Codification guidance. Only within income from continuing operations do tradition and industry practice determine the presentation.
The three items that are shown in the heading of an income statement are:
1 The name of the entity whose results of operations is being presented.
2 The title of the statement.
3 The period of time covered by the statement.
Entity Name The entity’s legal name should be used and supplemental information could be added to disclose the entity’s legal form as a corporation, partnership, sole proprietorship, or other form if that information is not apparent from the entity’s name.
Statement Titles The use of the titles “Income Statement,” “Statement of Income and Comprehensive Income,” “Statement of Operations,” or “Statement of Earnings” denotes preparation in accordance with GAAP. If another comprehensive basis of accounting were used, such as the cash or income tax basis, the title of the statement would be modified accordingly. “Statement of Revenue and Expenses—Income Tax Basis” or “Statement of Revenue and Expenses—Modified Cash Basis” are examples of such titles.
Statement Date The date of an income statement must clearly identify the time period involved, such as “Year Ending March 31, 20X1.” That dating informs the reader of the length of the period covered by the statement and both the starting and ending dates. Dating such as “The Period Ending March 31, 20X1” or “Through March 31, 20X1” is not useful because of the lack of precision in those titles. Income statements are rarely presented for periods in excess of one year but are frequently seen for shorter periods such as a month or a quarter. Entities whose operations form a natural cycle may have a reporting period end on a specific day (e.g., the last Friday of the month). These entities should head the income statement “For the 52 Weeks Ended March 29, 20X1” (each week containing seven days, beginning on a Saturday and ending on a Friday). Although that fiscal period includes only 364 days (except for leap years), it is still considered an annual reporting period.
Consistency of Form Income statements generally should be uniform in appearance from one period to the next. The form, terminology, captions, and pattern of combining insignificant items should be consistent. If comparative statements are presented, the prior year’s information should be restated to conform to the current year’s presentation if changes in presentation are made.
Aggregation The level of disaggregation is a matter of judgment. It should be efficient to give to readers meaningful information. Aggregation of items should not serve to conceal significant information, such as netting revenues against expenses or combining dissimilar types of revenues, expenses, gains, or losses. Although the Codification does not offer benchmarks for disaggregation of income items, the SEC's Division of Corporate Finance's Form and Content of and Requirements for Financial Statements, Regulation S‐X 5‐03(1) does require separate presentation for some items that exceed 10% of total revenue. Those items include net sales of tangible products, service revenue, rental income, operating revenue of public utilities or others, and other revenues. The SEC also requires the costs and expenses related to those items to be presented separately.1 Non‐SEC preparers may want to consider those thresholds when deciding which amounts to disaggregate. Any benchmarks used should be applied consistently.
The category “other or miscellaneous expense” should contain, at maximum, an immaterial total amount of aggregated insignificant items. Once this total approaches a material amount of total expenses, some other aggregations with explanatory titles should be selected.
Income from Continuing Operations The section “income from continuing operations” includes all revenues, expenses, gains, and losses that are not required to be reported in other sections of an income statement.
There are two generally accepted formats for the presentation of income from continuing operations:
Single‐step and
Multiple‐step
Single‐Step Format In the single‐step format, items are classified into two groups: revenues and expenses. The operating revenues and other revenues are itemized and summed to determine total revenues. The cost of goods sold, operating expenses, and other expenses are itemized and summed to determine total expenses. The total expenses (including income taxes) are deducted from the total revenues to arrive at income from continuing operations.
Multiple‐Step Format In a multiple‐step format, operating revenues and expenses are separated from nonoperating revenues and expenses to provide more information concerning the firm's primary activities. This format breaks the revenue and expense items into various intermediate income components so that important relationships can be shown and attention can be focused on significant subtotals. Some examples of common income components are as follows:
1 Gross profit (margin)
2 Operating income
3 Income before income taxes
Income from Continuing Operations The following items of revenue, expense, gains, and losses are included within income from continuing operations: