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You have graduated with your business degree and recently commenced work with a leading firm of public accountants. A number of important clients have become aware of possible changes to the reporting of Other Comprehensive Income (OCI) as highlighted in the IASB's Conceptual Framework Discussion Paper 2013/1. They have expressed concern regarding the implications of these changes. While the partners of the firm have been able to communicate with clients about this
issue, and are aware that it is by no means resolved, they have asked you to prepare a background report for presentation to other staff members to brief them on:
The partners require that the report is presented in simple language and in an interesting, easy-to-read format.
Length. The report is to have a maximum word length of 1,000 words, excluding the one-page executive summary, appendices and reference list.
The Report will consist of:
References. You are required to cite at least ten (10) recent sources which must include at least two (2) from academic literature and should include items from the media, accounting standard setters and relevant professional websites. Since the firm wants to maintain its high reputation, it is vital that the sources used are reliable, reputable, and relevant, cited in an accurate manner and properly referenced using the Harvard method OR APA method, as outlined in QUT Library document CiteWrite (http://www.citewrite.qut.edu.au/). Be consistent in using whichever method you choose.
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The Other Comprehensive Income is gaining popularity among the standard-setters because of the importance it can provide in a financial statement. The assignment deals with the rise of OCI as an important element and why it has been so relevant in current times. It has provided a brief view of the history of the OCI. It has also provided a broader insight into the requirements which are currently set by the standard setters for providing OCI in a financial statement which may prove useful for the users of the financial statements. The relation between the profit and loss statement and OCI has been looked into as well.
An explanation and a brief look into the various shortcomings pertinent to the OCI in the conceptual framework put forward by the IASB have been taken into consideration. The differences between the various items pertinent to profit and loss statement and the OCI and their classification have been touched upon.
The current international developments with respect to Other Comprehensive Income and the different implications it would have on the Australian reporting entities have been elaborated. The various changes in the amendment and the effect of these changes on the various firms that provide financial statements to the final users have also been explained.
It also looks into the various steps that would be taken and the appropriate time that the IASB needs in order to make certain revisions with respect to the conceptual framework that it has put forward.
Although the concept of Other Comprehensive Income started in the 1980s, it was looked into more thoroughly in the year 1997 by the Financial Accounting Standards Board (FASB).
It further progressed with the initiative of the group called G4+1 and the IASB representatives. The G4+1 involved the standard setters from various countries like Australia, Canada, US, New Zealand and Great Britain. They put forward the need of a financial statement that has the breakup of different important activities. This proposal led to the emergence of the Other Comprehensive Income. (Mihaela DUMITRANA, 2010).
Initially, the term Other Comprehensive Income was not accepted by the IASB even in its 2003 model but later in its 2007 revision which was made in IAS 1, the term OCI was accepted by the IASB.
The Other Comprehensive Income consists of the wealth that the firm makes through the various investments that a particular firm has and was considered to be different from the profit and loss statement. It provides a broader perspective about the performance of the company as well as the managers. The company and the users of the financial statements would be able to evaluate which activities need to be looked at with more importance and provides a better outlook on the future prospects of a firm.
It was required that all the transactions and operations which have recognizable gains and recognizable losses are included in the profit and loss statement and those which are intangible and unrealized gains and losses are put into Other Comprehensive Income (OCI).
It is required that the present financial statements of a particular firm must have their incomes and expenses expressed in a way that the users of the financial statements understand how well the firm is using its resources.
According to the amendments made in IAS 1, the total comprehensive income should consist of all the incomes and expenses in order to evaluate the financial performance of a firm. The total comprehensive income consists of two different categories which are Profit and Loss and OCI. It can be as a single statement displaying the total comprehensive income or as two different statements. The first statement would be that of an income statement or the profit and loss statement. The other statement would be initially a profit and loss statement and then OCI.
The present requirements of the OCI made according to the amendments in the IAS 1, however, had certain flaws according to certain firms.