CR Common Practices Other comprehensive income under IFRS

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1 Introduction Under International Financial Reporting Standards (IFRS), the disclosure of other comprehensive income is governed by IAS 1 Presentation of financial statements. Under IAS 1 companies have a choice of whether to present other comprehensive income information in a single statement in tandem with profit and loss information or in a separate statement (para 81). In our recent common practice on income statement format we found that 87% of companies favour the two statement approach. Whichever presentation format a company opts for, as part of a primary income statement, it shall disclose each component of other comprehensive income classified by nature (para 82(g)) excluding its share of other comprehensive income from associates and joint ventures accounted for using the equity method which shall be disclosed in a separate line (para 82h)). Components of other comprehensive income maybe presented net of related tax effects or before related tax effects with one amount shown for the aggregate amount of income tax relating to those components (para 91). In addition, as part of a primary statement, a company shall disclose total comprehensive income for the period attributable to owners of the parent and non-controlling interests (para 83(b)). IAS 1 in addition requires the disclosure of the amount of income tax relating to each component of other comprehensive income (para 90) and reclassification adjustments relating to components of other comprehensive income (para 92) with the option existing for both pieces of information to be presented either in the statement of comprehensive income or the notes. A further disclosure required is a reconciliation of each component of equity showing the carrying amount at the beginning and end of the period separately identifying changes resulting from each item of other comprehensive income (para 106A). A final issue considered will be the early adoption of a revision to IAS 1 which states that other comprehensive income items be grouped into those that will be reclassified subsequently to the profit and loss when specific conditions are met and those that will not. This revision is mandatory for annual periods beginning on or after 1 July 2012 although earlier application is permitted. Key observations include the following. All other comprehensive income components are analysed separately by nature on the face of the statement of comprehensive income by 93% of companies. Of those companies with evidence of tax on other comprehensive income, in the current year, 92% disclose amounts relating to individual components. Of those companies with evidence of reclassification of other comprehensive income amounts to profit and loss 100% identify such reclassification amounts separately. An allocation of total comprehensive income between that which relates to owners of the parent company and to non-controlling interests is presented by 87% of companies. A reconciliation of each component of equity showing changes resulting from each item of other comprehensive income is presented by 50% of companies. Of the companies with evidence of tax relating to other comprehensive income, in the current year, 67% opt to present components of other comprehensive income net of tax with the remaining 33% presenting components before tax. 1

2 Companies under examination Our sample consists of 30 large global listed companies that prepare IFRS financial statements with period ends between 31 December 2011 and 30 September The sample is drawn from a globally diverse range of countries and includes an array of companies from different industries. The companies of which the accounts have been analysed are as follows: Company Period End Auditors Country Industry Classification African Rainbow Minerals 30 June 2012 Ernst & Young South Africa Mining AGL Energy 30 June 2012 Deloitte Touche Tohmatsu Australia Multiutilities Air China 31 December 2011 Ernst & Young China Airline Americana Latina Logistica 31 December 2011 Ernst & Young Brazil Transportation Services Amvig Holdings 31 December 2011 RSM Nelson Wheeler Hong Kong Containers & Packaging Anglo American Platinum 31 December 2011 Deloitte & Touche South Africa Mining Arcelor Mittal South Africa 31 December 2011 Deloitte & Touche South Africa Iron & Steel Aspen Pharmacare Holdings 30 June 2012 Pricewaterhouse Coopers South Africa Pharmaceuticals Associated British Foods 15 September 2012 KPMG UK Food Products Axiata Group Berhad 31 December 2011 PricewaterhouseCoopers Malaysia Mobile Telecommunications B2W Compnhia Global do Varejo 31 December 2011 PricewaterhouseCoopers Brazil Broadline Retailers Bombardier 31 December 2011 Ernst & Young Canada Aerospace Brazil Foods 31 December 2011 KPMG Brazil Food Products British Sky Broadcasting 30 June 2012 Deloitte UK Broadcasting & Entertainment CGI Group 30 September 2012 Ernst & Young Canada Computer Services Genting Malaysia Berhad 31 December 2011 PricewaterhouseCoopers Malaysia Hotels Imperial Tobacco 30 September 2012 PricewaterhouseCoopers UK Tobacco Infineon Technologies 30 September 2012 KPMG Germany Semiconductors JBS 31 December 2011 KPMG Brazil Food Products Nexen 31 December 2011 Deloitte & Touche Canada Exploration & Production Orica 30 September 2012 KPMG Australia Specialty Chemicals Pernod Ricard 30 June 2012 Deloitte, Mazars France Distillers & Vintners Shaw Communications 31 August 2012 Ernst & Young Canada Broadcasting & Entertainment Siemens 30 September 2012 Ernst & Young Germany Electronic Equipment Sky City 30 June 2012 PricewaterhouseCoopers New Zealand Hotels Sky Network Television 30 June 2012 PricewaterhouseCoopers New Zealand Broadcasting & Entertainment Smiths 31 July 2012 PricewaterhouseCoopers UK Diversified Industrial Sodexo 31 August 2012 PricewaterhouseCoopers, KPMG France Restaurants & Bars ThyssenKrupp 30 September 2012 KPMG Germany Iron & Steel Wolseley 31 July 2012 PricewaterhouseCoopers UK Industrial Supplier 2

3 Analysis Other Comprehensive Income presentation: A benchmark Our analysis shows that, 93% of companies including Wolseley (Extract 1) separately classify by nature all other comprehensive income components, on the face of the statement of comprehensive income. The only companies not to do so are Air China and Siemens. Air China includes an other classification without giving any explanation. Siemens (Extract 2) does not include equity accounted investments as a separate line making reference to such only in a note. Of those 24 sample companies with evidence of income tax on other comprehensive income, in the current year, 92% including Smiths (Extract 3) disclose amounts relating to individual components. The only companies not to do so are Air China and Genting Malaysia. In the case of the former, despite not identifying an income tax amount in respect of an exchange realignment component of other comprehensive income, there is evidence of an unrealised exchange gain in its deferred tax note. In respect of the latter, there is a general statement in its taxation note as to the income tax effect on other comprehensive income components but this lacks clarity as to the impact on individual components. Of those 14 sample companies with evidence of reclassification of other comprehensive income amounts to profit and loss 100% including AGL Energy (Extract 4) identify such reclassification amounts separately. British Sky Broadcasting (Extract 5), CGI Group, Orica, Shaw Communications and Siemens identify separately the tax impact on amounts reclassified either on the face of the statement of other comprehensive income or in a note to the accounts. Of the sample companies 87% show an allocation of total comprehensive income between that which relates to owners of the parent company and to non-controlling interests including Sky Network Television (Extract 6). Companies which do not do so are African Rainbow Minerals, Nexen, CGI Group and B2W Companhia Global do Varejo. Of the sample, 50% of companies including Imperial Tobacco (Extract 7) present a reconciliation of each component of equity showing changes resulting from each item of other comprehensive income. All UK companies in the sample do so with a majority of the Brazilian and Asian companies doing so also. In contrast, none of the sample companies from continental Europe present such a reconciliation. The following table is ordered in such a way that those companies that according to our analysis are performing best are placed at the top. Company All Components by Nature Income tax by Component Reclassification Adjustment to Profit/Loss Total Comprehensive Income Controlling/Non- Controlling Other Comprehensive Income Items by Equity Component British Sky Broadcasting Wolseley Sky City Sky Network Television Smiths Imperial Tobacco N/A Associated British Foods N/A Americana Latina Logistica N/A JBS N/A N/A 3

4 Amvig Holdings N/A N/A Axiata N/A N/A Pernod Ricard AGL Energy Bombardier Orica Shaw Communications Sodexo ThyssenKrupp Infineon Technologies N/A Brazil Foods N/A Aspen Pharmacare N/A N/A Arcelor Mittal South Africa N/A N/A Anglo American Platinum N/A N/A African Rainbow Minerals N/A Nexen N/A B2W Compnhia global do Varejo N/A CGI Group Genting Malaysia N/A Siemens Air-China N/A N/A = A non applicable item of which the company has no evidence. Other Comprehensive Income: presentation choices Of those 24 sample companies with evidence of tax relating to other comprehensive income in the current year 67% including Bombardier (Extract 8) employ the option to present components of other comprehensive income net of tax. Such an approach is adopted by all Canadian sample companies and 4 out of 5 from the UK. In contrast, 3 out of the 4 Australasian companies including Orica (Extract 9) are among the 33% to present components before tax. Companies are faced with a choice of whether to present income tax by other comprehensive income component, reclassification adjustments and a reconciliation of equity components showing changes relating to other comprehensive income items either as part of a primary statement or in a note to the accounts. Of those 22 sample companies which identify income tax by component 45% including Smiths (Extract 3) identify tax amounts on the face of the statement of comprehensive income with the remaining 55% including Shaw Communications (Extract 10) instead giving such information in a note. Based on the sample selected UK companies are more likely to present tax amounts on the face of the statement of comprehensive income with 4 out of 5 opting for such an approach. In 4

5 contrast, 4 out of 5 continental European companies and all Australasian companies choose to disclose such information in a note. In relation to reclassification adjustments, of those 14 companies with evidence, 71% including AGL Energy (Extract 4) elect to disclose on the face of the statement of comprehensive income with the remaining 29% including CGI Group (Extract 11) instead disclosing in a note. Of the 15 companies presenting a reconciliation of equity components showing changes relating to other comprehensive income items 87% including Imperial Tobacco (Extract 7) do so on the face of the statement of changes in equity with the remaining 13% including Wolseley (Extract 12) disclosing in a note. Of the sample companies, Siemens and Sodexo (Extract 13) have elected to adopt the revision to IAS 1 early and now present items that could be reclassified to profit and loss separately from those that are not allowed to be. Bombardier although it does not adopt early states that on implementation there will be no impact as it already employs such a presentation. Anglo American Platinum although not adopting early makes reference to items that will be reclassified subsequently to profit and loss. In a presentation format that falls short of IAS 1 Brazilian company Americana Latina Logistica includes its statement of other comprehensive income in a note to the accounts rather than as a primary statement (para 10). Company 5 Other Comprehensive Income Components Income tax by Component Reclassification Adjustments Before tax Primary Note Primary Note Items by Equity Component Changes in Equity Net of tax Note British Sky Broadcasting Smiths Associated British Foods N/A N/A ThyssenKrupp Bombardier Brazil Foods N/A N/A Imperial Tobacco N/A N/A Nexen N/A N/A Infineon Technologies N/A N/A Sky Network Television Shaw Communications Siemens CGI Group Americana Latina Logistica N/A N/A Genting Malaysia N/A N/A Air-China N/A N/A

6 African Rainbow Minerals N/A N/A B2W Compnhia global do Varejo N/A N/A Wolseley Sky City Pernod Ricard AGL Energy Orica Sodexo Amvig Holdings N/A N/A N/A N/A N/A N/A Anglo American Platinum N/A N/A N/A N/A N/A N/A Arcelor Mittal South Africa N/A N/A N/A N/A N/A N/A Aspen Pharmacare N/A N/A N/A N/A N/A N/A Axiata N/A N/A N/A N/A N/A N/A JBS N/A N/A N/A N/A N/A N/A N/A = A non applicable item of which the company has no evidence. Summary - Conclusion Our principal conclusions are that: All other comprehensive income components are analysed separately by nature on the face of the statement of comprehensive income by 28 (93%) companies. Of those 24 companies with evidence of tax on other comprehensive income, in the current year, 22 (92%) disclose amounts relating to individual components. Of those 14 companies with evidence of reclassification of other comprehensive income amounts to profit and loss 14 (100%) identify such reclassification amounts separately. An allocation of total comprehensive income between that which relates to owners of the parent company and to non-controlling interests is presented by 26 (87%) companies. A reconciliation of each component of equity showing changes resulting from each item of other comprehensive income is presented by 15 (50%) companies. Of the 24 companies with evidence of tax relating to other comprehensive income components, in the current year, 16 (67%) opt to present components of other comprehensive income net of tax with the remaining 8 (33%) presenting components before tax. 6

7 Extracts Wolseley: All other comprehensive income components separately identified (Extract 1). 7

8 Siemens: Equity accounted investments not included as a separate line item on the face of the statement of comprehensive income (Extract 2). 8

9 Smiths: Income tax amounts are presented for individual components of other comprehensive income on the face of the statement of comprehensive income (Extract 3). 9

10 AGL Energy: Other comprehensive income statement amounts reclassified to profit and loss separately identified on the face of the statement of comprehensive income (Extract 4). 10

11 British Sky Broadcasting: The tax impact of amounts reclassified from other comprehensive income to profit and loss identified separately (Extract 5). 11

12 Sky Network Television: An allocation of total comprehensive income is presented showing that which is attributable to equity holders of the company and non-controlling interests (Extract 6). 12

13 Imperial Tobacco: A reconciliation of each component of equity showing changes resulting from each item of other comprehensive income (Extract 7). 13

14 Bombardier: Components of other comprehensive income presented net of tax (Extract 8). 14

15 Orica: Components of other comprehensive income presented before tax (Extract 9). CR Common Practices 15

16 Shaw Communications: The income tax impact on other comprehensive income components is shown in a note (Extract 10). 16

17 CGI Group: Amounts reclassified from other comprehensive income to profit and loss disclosed in a note to the accounts (Extract 11). 17

18 Wolseley: A reconciliation of each component of equity showing changes resulting from each item of other comprehensive income is presented in a note (Extract 12). 18

19 Sodexo: A consolidated statement of comprehensive income showing separately components to be reclassified to profit or loss and those that will not be (Extract 13). 19