our roots run deep

After taking more time to study the effects of a standard issued in 2011, the FASB has proposed a new approach to the reporting of items reclassified out of accumulated other comprehensive income (AOCI). Under a proposed Accounting Standards Update (ASU) issued in August 2012, companies would be required to provide enhanced disclosures, including a breakdown by component of the items reclassified out of AOCI, along with a roadmap to related financial disclosures. Although this would not provide “new” information compared with current reporting requirements, a key benefit for users is that it would provide a single tabular presentation that allows them to easily locate all the information about AOCI in one place. This Messenger highlights the proposed changes and open questions.

Highlights of proposed changes

If the ASU is adopted as proposed, the changes would be limited to footnote disclosures. There would be no change in the presentation of net income or other comprehensive income on the face of the financial statements. The new requirements would be as follows:

MAYER HOFFMAN MCCANN P.C. – AN INDEPENDENT CPA FIRM

A publication of the Professional Standards Group

September 2012

MHMMessenger

FASB Rethinks Disclosures Related to Accumulated Other Comprehensive Income

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• Management would need to provide a note disclosure that presents separately by component any reclassifications out of AOCI. Examples of components include: (a) gains and losses on cash flow hedges, and (b) unrealized gains and losses on available-for-sale securities.

• Management would also need to provide a tabular disclosure in which the exact treatment of any item would depend on whether US GAAP requires reclassification of the amount to net income in its entirety (or a reclassification of just a portion of the amount).

• If US GAAP requires reclassification of the amount to net income in its entirety, then the tabular disclosure would show the effects on the respective lines of net income.

• If US GAAP does not require reclassification of the amount to net income in its entirety, then the disclosure would provide a cross reference to other disclosures currently required under US GAAP for those items. An example of an item that might fall into this category is a reclassification of amortization of defined benefit pension items.

• The effects of reclassifications on the line items in the statement of net income should be presented on either a before-tax basis or a net-of-tax basis consistent with the entity’s method of presentation for the line items in the statement where net income is presented.

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This approach is expected to be more cost-effective for preparers of financial statements than the approach previously considered as part of ASU 2011-12. For additional background on prior steps taken by the FASB to increase the prominence of comprehensive income and the effects on net income, see MHM Messengers 11-11 and 3-12.

The new enhanced disclosures are illustrated on pages 3 and 4.

Open questions

The comment period is open until October 15, 2012. The FASB is specifically requesting comments in the following areas:

1. The proposed ASU would require the disclosures both on an interim basis and an annual basis. Would significant costs be incurred as a result of these disclosures, and, if so, what is the nature of those costs?

2. The proposed ASU would apply to both public and nonpublic entities, meaning private companies. It would not apply to not-for-profit entities since they do not use other comprehensive income. Should any part of the proposed amendments be different for nonpublic entities and, if so, how and why?

3. For public entities, the proposed effective date is for annual reporting periods ending after December 15, 2012. For nonpublic entities, the proposed effective date is for annual reporting periods ending after December 15, 2013. Are these effective dates reasonable?

For more information

MHM’s Professional Standards Group will provide a comment letter to the FASB. We are interested in your views on the proposed approach and open questions.

If you have any specific questions, comments or concerns, please share them with James Comito of MHM’s Professional Standards Group or your MHM service professional. James is located in our San Diego office and can be reached by email at jcomito@cbiz.com and telephone at 858-795-2029.

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Illustrative Disclosures

Entity XYZ Notes to Financial Statements

Changes in Accumulated Other Comprehensive Income by Component (a) For the Period Ended December 31, 201X

Gains and Losses on Cash

Flow Hedges

Unrealized Gains and Losses on Available-for-

Sale SecuritiesDefined Benefit Pension Items

Foreign Currency

Items TotalBeginning balance $(1,200) $1,000 $(8,800) $1,300 $(7,700)

Other comprehensive income before reclassifications 3,000 2,500 (3,000) 1,000 3,500 Amounts reclassified from accumulated other comprehensive income (b) (750) (1,500) 4,500 ─ 2,250

Net current-period other comprehensive income 2,250 1,000 1,500 1,000 5,750Ending balance $1,050 $2,000 $(7,300) $2,300 $(1,950) (a) All amounts are net of tax. Amounts in parentheses indicate debits. (b) See separate table found in paragraph 220-10-55-17E for details about these reclassifications.

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Illustrative Disclosures (con’t.)

Entity XYZ Notes to Financial Statements

Reclassifications out of Accumulated Other Comprehensive Income (a) For the Period Ended December 31, 201X

Details about Accumulated Other Comprehensive Income Components

Amount Reclassified from AOCI

Affected Line Item in the Statement Where Net Income is Presented

Gains and losses on cash flow hedgesInterest rate contracts $1,000 Interest income/(expense)Foreign exchange contracts 2,500 Sales/revenueCredit derivatives (500) Other income/(expense)Commodity contracts (2,000) Cost of sales

1,000 Total before tax(250) Tax (expense) or benefit$750 Net of tax

Unrealized gains and losses on available-for-sale securities $2,300 Realized gain/(loss) on sale of securities

(285) Impairment expenseInsignificant items (15)

2,000 Total before tax(500) Tax (expense) or benefit

$1,500 Net of taxAmortization of defined benefit pension items

Prior-service costs $(2,000) (b)Transition obligation (2,500) (b)Actuarial gains/(losses) (1,500) (b)

(6,000) Total before tax1,500 Tax (expense) or benefit

$(4,500) Net of taxTotal reclassifications for the period $(2,250) Net of tax

(a) Amounts in parentheses indicate debits. (b) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. (See pension footnote for additional details.)

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements.