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No Conceptual Basis for Other Comprehensive Income, FASB Says

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Denise Lugo

The FASB on November 11, 2020, affirmed there is no conceptual basis for other comprehensive income (OCI), an account companies like because it enables them to bypass presenting potentially very wild swings in assets and liabilities through the profit and loss (P&L).

It is impossible to identify a consistent set of circumstances in which components of comprehensive income should be reported in OCI, according to the discussions.

“I view it as there is no single conceptual basis for why the board has in the past used OCI. I think sometimes it is a pragmatic solution,” FASB Vice Chair James Kroeker said.

The discussion was part of board redeliberations on a 2016 proposed concepts chapter on presentation of financial information. FASB’s concepts statements are nonauthoritative guides it uses to develop accounting standards.

OCI is an account that resides on the balance sheet and bypasses the income statement. The topic generated extra interest in the public a few years ago over Warren Buffett’s remarks about an accounting standard. After Accounting Standards Update (ASU) No. 2016-01Financial Instruments—Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities, became effective, for example, unrealized gains/losses from investments in equity securities had to be run through P&L, whereas these gains/losses used to be reported in OCI. After adoption of ASU 2016-01, Buffett’s company Berkshire Hathaway had wild P&L swings because it holds a lot of investment securities. Buffett told investors to ignore those swings because they result from a rule that neither Charlie Munger (Berkshire’s Vice Chairman) nor he believe to be sensible.

The FASB’s OCI decision was specific to discussions on Proposed ASU No. 2016-300,Concepts Statement No. 8—Conceptual Framework for Financial Reporting—Chapter 7, Presentation, which was issued in August 2016 with a November 9, 2016 comment deadline. The proposal generated 17 comment letters.

Other board discussions included some about terminology – an issue that can be major in the accounting field. Specifically, the term “full set of financial statements” was discussed, focused on whether it was suitable wording for the concepts statement.

“I’m struggling with the word ‘full’ – full means maximum, the most you can fit in, and that’s clearly not the case,” FASB member Harold Schroeder said. “I wonder if we shouldn’t explore changing the word from ‘full’ to something else. In common usage, I quite often hear particularly bank lenders saying ‘I need a full set of financial statements’ and they mean the notes as well, they mean everything,” he said.

Schroeder suggested that to avoid confusion the board might be better off using the term “elemental set of financially statements,” in its concepts statement. Board member Marsha Hunt suggested using the word “primary.”

The board will continue redeliberations on the presentation chapter at a future meeting.


This article originally appeared in the November 16, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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