The FASB is an institute that does not work for profit, and whose main purpose is to develop the codification standard; a set of rules that govern the presentation of financial statements. In the literature, the FASB accounting standards codification is identified as the basis of the GAAP, the Generally Accepted Accounting Principles, which govern the presentation of financial information by nongovernmental organizations (FASB 105-10-05, 2009). The codification literature also identifies other sources of accounting policies, for example, the Securities and Exchange Commission, whose rules, releases and practices qualify to be authoritative sources of accounting policies. Apart from the authoritative sources of accounting policy, the codification identifies non-authoritative sources of accounting policy as widely recognized practices in the industry, FASB concept statements, AICPA issue papers, IFRS reporting standards or the IAS board, professional pronouncements, and technical information service enquiries. According to the literature, the codification presented guides the presentation of financial statements by nongovernmental organizations and states that all these organizations are subject to the rules of the GAAP (FASB 105-10-05, 2009). Therefore, the accounting policies presented by the codification are authoritative sources of accounting principles that have to be followed by all companies and organizations that do not fall under the jurisdiction of the government.
Comprehensive income in the authoritative literature
According to the FASB accounting standards codification, comprehensive income is the overall change in the net assets of an organization in a fiscal period due to operations that are attributable to non-owner resources (FASB 220-10-20, 2011). From the objectives of the codification, it is evident that the aim of reporting comprehensive income is to report changes in equity resulting from operations and economic activities that do not include the operations with primary shareholders in their capacity as shareholders. The literature also states that consideration for comprehensive income affects all entities that provide financial statements reporting financial position, operations, and statements of changes in cash position.
However, comprehensive income does not apply to entities that do not have other comprehensive income, a term that means the changes in the financial position of an organization due to operations that are not reflected in net income. This is because the FASB codification defines comprehensive income as the summation of the net income and other comprehensive income, which, therefore, requires all the income of an entity to be broken into two parts (FASB, 220-10-05, 2011). The two components of comprehensive income, net income and other comprehensive income are determined from the change in the financial position of an organization that is directly attributable to operations that do not include the transactions that owners carry out in their position as owners. The two components of comprehensive income; net income and other comprehensive income, are made up of income from normal transactions and unusual business operations respectively, where unusual business operations refer to the operations that an entity is not primarily sanctioned to perform.
Net income comparison
From the above definition of comprehensive income, net income can be identified as the determinant of the profitability of an organization resulting from the summation of all revenues and subtraction of expenses and losses, if the revenues, gains, expenses and losses are not part of other comprehensive income. Therefore, the FASB codification identifies three items that are included in net income; income from operations, income from discontinued operations, and income from extraordinary items, all of which are not part of other comprehensive income (FASB 220-10-45-7, 2011). From the classes of net income above, it is identified that incomes from operations include the income that is gained (lost) from usual business operations, income from discontinued operations includes the incomes that are realized when an organization disposes or sells of operations, while incomes from extraordinary items refer to the income earned by an organization from operations that are not part of normal operations. For example, to obtain net income, an entity will compute its revenues from operations and subtract expenses, add gains or losses from the disposal of securities, add other gains or expenses, and subtract income taxes and interest expenses.
Comprehensive income comparison
Another comprehensive income is the income that an organization has that cannot be attributed to the normal business operations of the company, including the operations that a company foresees but cannot classify them as normal operations (FASB 220-10-45-10A, 2011). This means that the operations that an entity is sanctioned to perform can be reported under the net income; other income is reported as part of other comprehensive income, a component included in the income under the net income. Examples of other comprehensive income include foreign currency translation losses or gains, gains and losses on foreign currency transactions between entities and hedge funds, and gains and losses on securities held for sale. Other sources of other comprehensive income are reported in the financial statements are foreign currency adjustments, unrealized gains on securities, defined pension plans, and gains or losses from foreign transactions. Therefore, other comprehensive income is calculated by taking into consideration the changes (gains or losses) from the described elements of other comprehensive income, and the resulting net figure added to net income to give the figure for total comprehensive income.
FASB, 105-10-05. (2009). Generally Accepted Accounting Principles. Accounting Standards Codification. Web.
FASB, 220-10-05-01. (2011). Overview and Background. Accounting Standards Codification. Web.
FASB, 220-10-20. (2011). Glossary. Accounting Standards Codification. Web.
FASB, 220-10-45-7. (2011). Classifications within Net Income. Accounting Standards Codification. Web.
FASB, 220-10-45-10A. (2011). Comprehensive Income. Accounting Standards Codification. Web.