Abstract

According to IFRS, all income and expense items are required to be presented in the profit or loss
section of the statement of comprehensive income unless the IFRS requires that it be presented in a
separate section called (OCI). Due to the interaction between profit or loss and OCI is unclear, it
result some arguments which given by those who state that an item of income and expense that is
classified in OCI should always be recycled, or by those who think that it should never be recycled,
or by those who think that recycling should be required for only some types of OCI items. There are
a number of attributes that are often used to distinguish , however, each provides some insight into
possible distinctions, no one attribute is definitive and can be used in isolation. IASB believe that no
single attribute can operationally and meaningfully distinguish between those items that should be
presented in profit or loss and those that should be presented in OCI.

Introduction
The Conceptual Framework does not specifically discuss presentation of financial performance in
the statements of profit or loss (P&L) and other comprehensive income (OCI). (Gordon et al., 2015)
The Framework does not define profit or loss, and nor does it provide criteria for distinguishing the
characteristics of items that should be included in profit or loss from those items that should be
excluded from profit or loss. (Presentation of items of Other Comprehensive Income (OCI), 2015)
Profit or loss is defined as the total of income less expenses, excluding the components of other
comprehensive income; whereas other comprehensive income is defined as comprising items of
income and expense that are not recognized in profit or loss as required or permitted by other IFRs.
(Robinson,Peter, Rachel, 2013)
According to Starkey, Richard, CA(SA, they claims that the purpose of the statements of profit or
loss and other comprehensive income is to depict summarized information about recognized items
of income and expense that have been classified and aggregated in a manner that is useful to users
in their assessment of the entitys financial performance. Moreover, information presented in the
statements of profit or loss and other comprehensive income is useful in assessing the entitys past
and future financial performance. Therefore aggregation and classification into line items, totals and
sub-totals in the statements of profit or loss and other comprehensive income should enhance the
predictive nature of the information presented. (Starkey, 2013)

Main Evaluation of Other Comprehensive Income VS Profit and Loss

In accordance with others IFRS, OCI items will be reclassified to P&L at a future point in time or
will never be reclassified to P&L. (Presentation of items of Other Comprehensive Income (OCI),
2015) Thus, it requires an entity present separately the items of other comprehensive income that
would be reclassified to profit or loss in the future if certain conditions are met from those that
would be never reclassified to profit or loss. (FASB, IASB Align Presentation of Other
Comprehensive Income, 2011)
According to the SFAS NO. 133, OCI items included unrealized gains and losses from availablefor-sale securities and translation gain or losses are reported in net income requires reclassifying
these gains and losses to P&L. One of the items that rise during a period reclassified as OCI is The
Effects of Changes in Foreign Exchange Rates. (Jefferson and Arlette) According to IFRS, IAS21
applied for foreign currency transactions and also how to translate financial statements into a
presentation currency. (IFRS, 2012) An exchange differences arising on the net investment in a
foreign operation recognized initially in OCI and reclassified from equity to P&L on disposal of the
net investment. (Modack, 2009) Another examples that arise the reclassified the OCI to P&L is
Effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39).
(Jefferson and Arlette) The exception to this rule is when an entity is hedging an investment in
equity instruments for which it has elected to present changes in fair value in OCI, as permitted by
IFRS 9. For such a hedge, the fair value change of the hedging instrument is recognised in OCI.
Ineffectiveness is also recognised in OCI. (Earnest & Young, 2014) Consequently, the same also
applies for any accumulated fair value changes on the hedging instrument, including any
ineffectiveness.
Reclassification adjustments do not arise which means there are certain items that recognized in
OCI but are not reclassified to P&L, for example, Changes in revaluation surplus recognized in
accordance with AASB 116. According to Kemp and Jeannette, AASB 116 applies to all companies
must prepare and lodge Corporations Act financial reports and to general-purpose financial
statements. (Kemp, Stephanie, 2006) The exception to this rule is the changes in revaluation surplus
may be transferred directly to retained earnings left in equity as the asset is used or derecognized.
Moreover, in accordance with AASB119, Employee Benefits(IAS19), actuarial profits or losses are
classified from retained earnings to OCI without recycling through the P&L. (IAS19--employee
benefits, 2002) This is because the changes in the measurement component may not providing
useful information about the likely amount and timing of future cash flow. (Presentation of items of
Other Comprehensive Income (OCI), 2015) Besides that, gain and losses from investments in

financial instruments (credit risk) measured at fair value or changes at fair value are recorded to
OCI without recycling through the P&L. (Lurie, Ehud; Shuv, Shlomi, 2015)
Next, there is a general lack of agreement about which items should be presented in profit or loss
and in OCI. Due to the interaction between profit or loss and OCI is unclear, there are several
arguments for and against reclassification. First, those who support all OCI items are recycled
argued that recycling protects the integrity of profit or loss as the primary group of items
representing financial performance. (Robinson,Li Lian, 2013) Another view support that recycled
enhances comparability where IFRS permits similar items to be recognized in either P&L or OCI.
Moreover, it is also argued that if the item is recycled, it provides users with relevant information
about a transaction that occurred during the period. (Robinson,Li Lian, 2013)
On the other hand, those against reclassification argued that items of income or expense that
presented in profit or loss is not improve the financial performance because it gives little additional
relevant information during that period. (Robinson,Li Lian, 2013) Moreover, it argued that if there
is the change in the asset or liability may have occurred in a previous period, reclassification
adjustments may not be able to meet the income or expense in the term of definition. (Robinson,Li
Lian, 2013) Besides, it argued that due to the recycling, financial reporting would become
complexity and therefore impairs the understandability of information provided. (Robinson, Li
Lian, 2013) However, there is still have one party view that some of the OCI items should be
recycled but no all of the items. For this view, recycling only function if it provides relevant
information about financial performance in a period.
In order to further discuss the OCI and P&L, there are suggestions made for an attribute to
distinguish between profit or loss and OCI with IASBs suggestion to reduce any inconsistent use of
the OCI. First of all, one of the attribute to distinguish OCI and P&L is operating and nonoperating income/expenses. (Robinson,Peter, Rachel, 2013) Non-operating items expenses/income
such as investing and financing activities are record in OCI whereas the operating items
income/expenses such as cost of sales, general and administrative expense are record in P&L.
Operating items more useful in predicting future cash flows by reflecting the entitys business
model, thus, it encourage separate treatment of operating and non-operating items because it
provides clarification regarding a companys operations. (Robinson,Li Lian, 2013) Another attribute
to distinguish OCI and P&L is realized and unrealized gain/losses. Unrealized gain/losses, for
example, a security increases or decreases in value above or below the price paid for that security
are record in OCI. (Robinson,Peter, Rachel, 2013) These represent gains and losses from changes in
the value of assets or liabilities that have not yet been settled and recognized, so that, it recorded in

an account called accumulated other comprehensive income. (Wilkinson, 2013) However, realized
gain/losses, for example, when the stock is sold are record in P&L. Another attribute is nonrecurring and recurring income/expenses. Non-recurring items such as litigation fees, write-offs
of bad debt or worthless assets are not expected to affect the companys future net income are
record in OCI. (Valuationacademy.com, 2015) However, recurring items such as disposing of a
component of entity, intangible assets, inventories and receivables are record in P&L. Recurring
items are likely to recur going forward which is more persistent and therefore more useful in
predicting future cash flows. Therefore, separate recurring from non-recurring items provide a much
better chance at predicting the future. (Fuhrmann, 2013) Moreover, long-term and short-term is
another attributes to differentiate OCI and P&L. Items of income/expense that will be realised in the
long-term are presented in OCI because of those items are more likely to reverse or otherwise
change before realisation and therefore have less predictive value. (Robinson, Peter, Rachel, 2013)
However, those items of income/expenses that will be realized in the short-term are presented in
P&L because these items more useful in predict value.
Conclusion
As concluded,

the purpose of OCI and P&L is assess an entitys past and future financial

performance by using the information that presented in the statements of profit or loss and other
comprehensive income. (Gordon et al., 2015) To conclude the part of distinguish what might be
presented in profit or loss from what might be presented in OCI, IASB believe that no single
attribute can operationally and meaningfully distinguish between those items that should be
presented in profit or loss and those that should be presented in OCI. By according to the Kristy
Robinson, Peter Clark, Rachel Knubley, they claims that IASB suggesting three broad principles.
First Principle namely profit or loss provides the primary source of information about the return an
entity has made on its economic resources in a period; second Principle 2 namely all items of
income and expense should be recognised in profit or loss unless presenting an item in OCI
provides more relevant information and Principle 3 namely an item that has previously been
presented in OCI should be reclassified to profit or loss when the reclassification results in relevant
information about financial performance in that period. (Robinson, Peter, Rachel, 2013)
(1575words)

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