Remembering what to disclose on an income statement presentation, especially for a public company, could be daunting to even a highly-skilled accountant. This post aims to provide a handy set of pointers that may act as reminder for accountants who have difficulty to remember all items required to be presented.

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Those items presented on the income statement are being there for good reasons; provides stakeholders (investors, creditors, and others) with clear yet complete information, about company’s performance for a certain period (Jan 1 to Dec 31).

Although information in the income statement comes from data about past performance, investors, creditors, and others use that information to predict company’s future performance. They want to know company’s net income and its components, which are provided in the income statement, and how its likelihood will be happened in the future period through analyses. Income statement provides information about a period of time. It reflects information about the transactions and other events occurring within the period. Companies are continually creating and selling goods and services, and at any single point in time some of those processes will be incomplete. Thus, however, measurement of net income for a period involves estimates.

Here are items to disclose on an income statement.

 

Income Statement Basic Disclosures

Basic disclosures in this context means: at minimum, an income statement should present the following items:

  • Revenues and related costs with the following categories separately stated, if applicable: (a) product sales net of discounts, returns, and allowances; (b) rental revenues; (c) service revenues; and (d) other revenue.
  • Income or loss before extraordinary items
  • Extraordinary items
  • Income taxes
  • Discontinued operations
  • Depreciation
  • Interest expense
  • Gain or loss from extinguishment of debt
  • Foreign currency realized gains and losses
  • Marketable securities gains and losses
  • Research and development expenses
  • S Corporation election

 

Income Tax Disclosures

Income tax definitely occurs on any income statements with a profit figure. But corporate income tax isn’t all about factoring income bracket with a certain tax rate. In term with income tax, a public company in the U.S.’s jurisdiction is required to disclose the followings on its income statement presentation:

  • State if entity is not subject to income taxes because income is taxed directly to owners. State the net difference between tax and book bases of assets and liabilities.
  • State amounts allocated to: (a) current tax expense or benefit; (b) deferred tax expense or benefit (exclusive of the effects of other components listed next); (c) investment tax or other credits; (d) government grants; (e) the benefits of operating loss carryforwards; (f) tax expense that results from allocating certain tax benefits directly to contributed capital; (g) adjustments of a deferred tax liability or asset for enacted changes in tax laws or rates or a change in the tax status of the enterprise; and (h) Adjustments of the ‘beginning-of-the-year balance’ of a valuation allowance because of a change in circumstances that causes a change in judgment about the realizability of the related deferred tax asset in future years
  • Amounts allocated to: (a) continuing operations; (b) discontinued operations; (c) extraordinary items (d) cumulative effect of accounting changes; (e) prior period adjustments; (f) gains and losses included in comprehensive income but excluded from net income; and (g) capital transactions.
  • Reconcile statutory tax rates to actual rates for significant items (nonpublic enterprises need only disclose the nature of significant reconciling items).
  • Amounts and expiration dates of operating loss and tax credit carryforwards for income tax purposes.
  • If consolidated return filed, separately issued financial statements should state: (a) amount of current and deferred tax expense for each income statement; (b) tax-related balances due to or from affiliates for each balance sheet; and (c) the method of allocating consolidated amounts of current and deferred tax expense and effects of any change in that methodology.
  • Cumulative effect of change (similar to change in accounting principle) for earliest restated financial statements.

Note:

When a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes, the following information shall be disclosed:

  • A description of the types of temporary differences for which a deferred tax liability has not been recognized and the types of events that would cause those temporary differences to become taxable.
  • The cumulative amount of each type of temporary difference.
  • The amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries and foreign corporate joint ventures that are essentially permanent in duration if determination of that liability is practicable or a statement that determination is not practicable.
  • The amount of the deferred tax liability for temporary differences other than those in c. above (i.e., undistributed domestic earnings, the bad-debt reserve for tax purposes of a US savings and loan association or other qualified thrift lender, the policyholders’ surplus of a life insurance enterprise, and the statutory reserve funds of a US steamship enterprise) that is not recognized.

 

Short-Term Investment Disclosures

If the company has short-term investments, securities-related disclosures are required. The following items should be disclosed:

  • Proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses on those sales.
  • Basis on which cost was determined in computing realized gain or loss.
  • The gross gains and gross losses included in earnings from transfers of securities from the available-for-sale category into the trading category.
  • The change in net unrealized holding gain or loss on available-for-sale securities that has been included in other comprehensive income during the period.
  • The change in net unrealized holding gain or loss on trading securities that has been included in earnings during the period.

 

Extraordinary Items Disclosures

Extraordinary item could be events or transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. If a company has extra ordinary items, the following disclosures are required:

  • Segregated and shown net of tax.
  • Adequate explanations of nature of extraordinary item(s).
  • Infrequent or unusual items shown separately although not extraordinary; not shown net of tax.
  • For adjustment of amounts reported in prior period that do not qualify as prior period adjustments, classify separately in same manner as original item, with year of origin, nature and amount.
  • Disclosures in the Interim Financial Information
  • An income statement for interim reporting is required to provide, at a minimum, the captions and disclosures required when publicly traded entities report summarized interim financial information. These required disclosures are:
  • Sales or gross revenues, provision for income taxes, extraordinary items, cumulative effect of a change in principle, net income, and comprehensive income.
  • Basic and diluted earnings per share for each period presented.
  • Seasonal revenues, costs, and expenses.
  • Significant changes in income tax estimates.
  • Disposal of a component of an entity and extraordinary, unusual, or infrequently occurring items.
  • Contingencies.
  • Effect of changes in accounting principles or estimates.
  • Significant changes in financial position.

In addition, information regarding reportable operating segments including provisions related to restatement of segment information in previously issued financial statements, i.e.:

  • Revenues from external customers
  • Intersegment revenues
  • A measure of segment profit or loss
  • Total assets for which there has been a material change from the amount disclosed in the last annual report;
  • A description of differences from the last annual report in the basis of segmentation or in the measurement of segment profit or loss
  • A reconciliation of the total of the reportable segments’ measures of profit or loss to the enterprise’s consolidated pretax income, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles
  • Information about the use of fair value to measure assets and liabilities recognized in the balance sheet; (8) information about derivative instruments.

Note:

The following information regarding defined benefit pension plans and other defined benefit postretirement benefit plans, disclosed for interim statements that include an income statement:

  • The amount of the net periodic benefit cost recognized, for each period for which a statement of income is presented, separately showing the: service cost component, interest cost component, expected return on plan assets for the period, gain or loss component, prior service cost or credit component, transition asset or obligation component, and gain or loss recognized due to a settlement or curtailment.
  • The total amount of the employer’s contributions paid, and expected to be paid during the current fiscal year, if significantly different from amounts previously disclosed. Estimated contributions may be presented in the aggregate, combining contributions required by funding laws or regulations, discretionary contributions, and noncash contributions.

When summarized financial information is reported on a regular quarterly basis, the above captions and disclosures included are presented for the current quarter and the current year-to-date (or the preceding twelve months to date), along with comparable data for the preceding year.

 

Segment Data Disclosures

General information, on segments, to be disclosed are:

  • Factors used to identify the enterprise’s reportable segments, including the basis of organization (e.g., whether management has chosen to organize the enterprise around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated).
  • Types of products and services from which each reportable segment derives its revenues.

The following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker:

  • Revenues from external customers
  • Revenues from transactions with other operating segments of the same enterprise
  • Interest revenue
  • Interest expense
  • Depreciation, depletion, and amortization expense
  • Unusual items
  • Equity in the net income of investees accounted for by the equity method
  • Income tax expense or benefit
  • Extraordinary items

Disclose the following about each reportable segment if the specific amounts are included in the determination of segment assets reviewed by the chief operating decision maker:

  • The amount of investment in equity method investees.
  • Total expenditures for additions to long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets.

An explanation should be provided of the measurements of segment profit or loss and segment assets for each reportable segment; at a minimum, these shall include the following:

  • The basis of accounting for any transactions between reportable segments.
  • The nature of any differences between the measurements of the reportable segments’ profits or losses and the company’s consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles (if not apparent from the reconciliations); for example, accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
  • The nature of any differences between the measurements of the reportable segments’ assets and the company’s consolidated assets (if not apparent from the reconciliations); for example, accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
  • The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss.
  • The nature and effect of any asymmetrical allocations to segments; for example, an enterprise might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

Reconciliations of the totals of segment revenues, reported profit or loss, assets, and other significant items to corresponding company amounts, as follows:

  • The total of the reportable segments’ revenues to the enterprise’s consolidated revenues.
  • The total of the reportable segments’ measures of profit or loss to the company’s consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles.
  • The total of the reportable segments’ assets to the company’s consolidated assets.
  • The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount.

And, the followings are company-wide disclosures:

  • Revenues from external customers for each product and service or each group of similar products and services unless it is impracticable to do so. (The amounts of revenues reported shall be based on the financial information used to produce the enterprise’s general-purpose financial statements. If providing the information is impracticable, that fact shall be disclosed.)
  • Revenues from external customers: (1) attributed to the enterprise’s country of domicile; (2) attributed to all foreign countries in total from which the enterprise derives revenues unless it is impracticable to do so. (If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. Also disclose the basis for attributing revenues from external customers to individual countries.)
  • Long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets.
  • If providing the geographic information is impracticable, that fact shall be disclosed.

If revenues from transaction with a single external customer amount to ten percent or more of an enterprise’s revenues, disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. Depreciation and amortization expense for each reportable segment, when the chief operating decision maker evaluates the performance of its segments based on earnings before interest, taxes, depreciation, and amortization. (…continued on Part-2)