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Review of Other Comprehensive Income

In: Business and Management

Submitted By bradleyjds
Words 1893
Pages 8
Executive Summary
The purpose of this report is to outline the history, current requirements and potential issues regarding the presentation of Other Comprehensive Income (OCI) for Australian reporting entities. Historically, there has been a long standing debate on what items should be included in income, operating income (dirty surplus) or an all-inclusive income (clean surplus).
Dirty surplus accounting excludes all items not related to the current operations of the firm and is generally based upon by past firm transactions. The all-inclusive method recognises both operating income as well as revaluation increments (gains and losses) of net assets as part of income (clean surplus) (Hodgson, 2014).
The all-inclusive income method was adopted by the Financial Accounting Standards Board (FASB) in 1997 and subsequently the International Accounting Standards Board (IASB), leading to ‘comprehensive income’ reporting. Comprehensive Income (CI) is the sum of Profit or Loss (P&L) and OCI. OCI comprises of items of income and expense not recognised in profit or loss as required or permitted by AASB (AASB, 2014)
Recent Amendments permit P&L and OCI to be presented in as a single statement or in separate statements with the P&L section first. In the past, the FASB permitted a third alternative to recognize OCI in statement of equity (FASB, 1997), (AASB, 2011). Items within OCI also need to be grouped together, on the basis of whether they will eventually be ‘recycled’ to the profit or loss section of the income statement.
One of the issues within the current Conceptual Framework is recycling. Presently there is no clear distinction on how it should be treated, with many diverging opinions among respondents ranging from ‘always recycle’ to ‘never recycle’ with majority supporting a ‘broad approach’, citing favoured flexibility. (IFRS, 2014). Recycling, also known as…...

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