- Other Comprehensive Income (OCI) reflects the changes in a company’s equity during the accounting period which does not represent contributions by or distributions to the company’s owners.
- Reporting Comprehensive Income: firms can report comprehensive income below net income on the income statement, as an extra column on the statement of changes in shareholders’ equity, or through a statement of comprehensive income.
OCI = Ending Shareholders’ Equity – Beginning Shareholders’ Equity – Net Income + Declared Dividends
Items Under OCI Category
U.S. GAAP has four items that fall under the OCI category:
- Unrealized Gains/Losses on Certain Investment Securities: these are gains or losses from intercorporate investments classified as available for sale (AFS). The unrealized gain/loss in the accounting period does not affect net income for the period, but does impact shareholders equity as part of OCI.
- Unrealized Gains/Losses on Hedging Derivatives: a change in the fair value of derivatives contracts used for hedging is not part of net income, but is applied to equity through OCI.
- Foreign Currency Translation Adjustments: when a company consolidates foreign subsidiaries using the current rate method, the gain or loss resulting from the foreign exchange adjustments is reported as part of OCI.
- Pension Liability Adjustments: actuarial gains and losses related to defined benefit retirement plans are recorded as part of OCI.