Other Comprehensive Income under US GAAP
Introduction
Other items within comprehensive income encompass revenues, expenses, gains, and losses which are incorporated into comprehensive income but not accounted for in net income according to U.S. GAAP.
A corporation shall classify the specific items by their nature viz.
Pension Adjustments
According to U.S. GAAP, specific gains and losses stemming from accounting for defined benefit pension plans need to be acknowledged in other comprehensive income during the year when the alterations happen. These gains and losses remain part of other comprehensive income until they are accounted for as pension expenses on the income statement.
Unrealised Gains and Losses (Available for Sales Debt securities and Hedges)
The following types of unrealized gains and losses on certain investments in debt securities and hedges are reported as components of other comprehensive income until the securities are sold or until the cash flows associated with the hedged item are realized.
1. Unrealized holding gains and losses on "available-for-sale debt securities."
2. Unrealized holding gains and losses that result from a debt security being transferred into the "available-for-sale" category from "held to maturity."
3. Subsequent decreases or increases in the fair value of "available-for-sale" debt securities previously written down as impaired.
4. Gains or losses on derivative instruments that are designated as, and qualify as, cash flow hedges.
5. For derivatives that are designated in qualifying hedging relationships (both fair value and cash flow) with an excluded component (a component excluded from the assessment of hedge effectiveness), an entity is permitted to recognize, as a component of other comprehensive income, differences between the changes in fair value of the excluded component and initial amounts recognized under a systematic and rational method in earnings.
Foreign Currency items
Foreign currency items, including translation adjustments and gains/losses on foreign currency transactions designated as effective hedges of a foreign entity's net investment, are reported in other comprehensive income. These adjustments remain in other comprehensive income until the foreign entity investment is sold. Long-term intra-entity foreign currency transaction gains/losses are combined or accounted for in consolidated entities. For liabilities opting for the fair value option, changes in fair value due to instrument-specific credit risk are included in comprehensive income.
CA L.Muralidharan and CPA L.Mukundan
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