I am not aware of any other book that deals with the accounting for equity and other comprehensive income as comprehensively as this text. Francesco Bellandi seeks to explain the accounting for stockholders' equity and other comprehensive income under both International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (GAAP) (p. 11), with the focus on presentation of equity in financial statements (p. 14). While public accounting firms (e.g. Deloitte) publish comparisons between IFRS and US GAAP, what sets this book apart from these professional publications and other accounting books in the market is its exclusive focus on components of equity and other comprehensive income.
The author is a Certified Public Accountant in the USA and has extensive accounting‐related work experience in various organizations in both the USA and Europe. He also conducts seminars for chief financial officers on US GAAP/IFRS dual reporting. The book is primarily intended for corporate management and accounting practitioners (p. 11).
The book consists of eight chapters. Chapter I provides an introduction to the book. It briefly overviews the concepts of equity and other comprehensive income, and outlines the financial statement presentation project jointly undertaken by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). Chapter II discusses various terms related to equity, basic characteristics of equity, and consequences of the switch to IFRS.
Chapter III explains the concept of a reserve, types and functions of reserves, and appropriations of retained earnings. Chapter IV focuses on presentation within the equity section of the statement of financial position and explains two alternative formats of the statement of financial position and the layout of the equity section of the statement of financial position. Further, it elaborates on the concepts of and accounting for non‐controlling interests, discount on issuance of equity, equity issuance costs, subscriptions receivable, shares issued in exchange for notes receivable, and treasury stock.
Chapter V concentrates on additional paid‐in‐capital, while Chapter VI discusses various items that may affect retained earnings. Chapter VII explains the concepts of comprehensive income and other comprehensive income, clean surplus and dirty surplus, capital maintenance and recycling, and attempts to link these concepts. This chapter is commendable and could be used as a supplement to standard accounting text books in third year accounting courses. Chapter VIII examines the presentation of taxes on equity items.
The strength of this book lies in both its comprehensive coverage and the sense of history, it provides concerning the accounting requirements for equity and other comprehensive income. It details the accounting for equity and other comprehensive income under both US GAAP and IFRS, while traversing various topics such as share capital, share premium, discounts on issue of shares, share issue costs, treasury stock, non‐controlling interests, items affecting retained earnings, comprehensive income, and other comprehensive income, mandatorily redeemable securities, and taxes on equity items.
The book meticulously follows the evolution of accounting concepts and requirements for various components of equity and other comprehensive income in the standard setting literature over time. For example, it discusses the switch from minority interests to non‐controlling interests, along with the conceptual underpinnings, and explains the evolving accounting requirements for mandatorily redeemable securities and non‐controlling interests. Accounting students may find this discussion of the evolution of concepts and accounting requirements particularly interesting. The author extensively cites IFRS and US GAAP and refers to Exposure Drafts and Discussion Papers issued by the FASB and the IASB. Further, many useful tables that supplement the discussion in the text are provided at the end of the book.
However, there are a number of issues which the author may wish to address in the next edition of the book. First, the author deliberately abstains from giving a detailed treatment of the distinction between equity and liability (p. 44 and p. 137, footnote 528), though he discusses hybrid instruments, such as mandatorily redeemable instruments. The equity/liability distinction is critically important to the determination of equity and hence, the omission of this topic is unfortunate.
Second, the book contains numerous mistakes (grammatical, typos, and factual). Some examples of grammatical mistakes and typos include: “[…] net assets become a (sic) synonymous with equity” (emphasis in original) (p. 29); “A subordinated interest that is capital‐at‐risk […] is substantive, and therefore, will be consider (sic) as determining variability” (p. 51); “Although these examples […] generally arisen (sic) in jurisdictions […]” (p. 56); “[…] or, if redemption is not mandatorily (sic), when distributions are not at the discretion of the issuer, […]” (p. 132); “Worksheet 42 summaries (sic) the pros and cons […]” (p. 277); “[…] they may be (sic) show up in a single statement […]” (p. 277).
Further, there is an inconsistency in the book:
It is to be noted that while both the US Concepts and the IASB Framework adopt the residual interest approach, the latter also discusses the invested and earned equity model (emphasis added) (p. 36).
This does not match Worksheet 3, which says that the former (i.e. US Concepts), not the latter (i.e. the IASB Framework), discusses the invested and earned equity model. Similarly, the criterion for judging small stock dividend mentioned in p. 85 is confusing:
Under U.S. GAAP, in case of small stock dividends (when the issuance of share does reduce the per‐unit price by more than 20‐25% of the outstanding shares before declaration) […] (emphasis added) (p. 85).
The 20‐25 percent threshold actually refers not to price decline as a result of stock dividend but to the number of shares issued as stock dividend (FASB, 2010b).
Third, when referring to the current US GAAP, the author mainly adopts the old practice of citing US accounting standards though, in some cases, he cites the FASB Accounting Standards Codification (ASC) alongside the US accounting standards. After the issuance of the FASB ASC, there is only one source of authoritative US GAAP and the FASB (2010a) suggests that the FASB ASC, not the accounting standards, be cited in books and articles. The author should follow the FASB suggestion.
Fourth, the book could be made more appealing to academics by integrating academic research findings into the discussion. For example, the author could have cited the research findings on the value relevance and predictive ability of net income and comprehensive income (Chambers et al., 2006; Goncharov and Hodgson, 2008) in Chapter VII. He could also have incorporated the empirical evidence (Bamber et al., 2010) that sheds light on the debate on the format for reporting comprehensive income into the discussion in Chapter VII.
Last, there are issues surrounding the flow of ideas within the book. For example, it is not clear why the author discusses the equity section (Chapter IV) after discussing reserves (Chapter III) but before discussing additional paid‐in‐capital, retained earnings, etc. Again, while the author discusses the evolving accounting requirements for components of equity and other comprehensive income, it is sometimes difficult to follow the discussion. Since the book is primarily intended for corporate management and accounting practitioners, in my opinion, it would be easier to comprehend the discussion if the author could keep the historical development of concepts and accounting requirements separate from the current requirements and expected future developments (i.e. discussion papers/exposure drafts). Further, where appropriate, the author may like to structure the discussion according to the following issues: classification, recognition, measurement, disclosure, and display. Given that each chapter is lengthy, a brief outline of the chapter at the beginning of each chapter would also enhance the readability of the book.
Despite these issues, I believe corporate executives will find the book useful. Writing a printed book on accounting for equity and other comprehensive income under both IFRS and US GAAP is a risky and challenging proposition, because both IFRS and US GAAP are in a state of rapid change and many standards affect equity and other comprehensive income[1]. Thus, some parts of the printed book may become outdated soon. For example, both IASB and the FASB issued an exposure draft in May 2010 that proposes to eliminate some of the current options available for reporting other comprehensive income. Now many projects are on the agenda of the IASB and the FASB and these projects may lead to changes in accounting requirements for equity and other comprehensive income. Thus, the useful life of the book will depend on how much time it takes for the FASB and the IASB to convert the ongoing projects into standards affecting components of equity and other comprehensive income.
Notes
An idea of the challenge can be had from the list of literature affecting equity and other comprehensive income in Worksheet 80.
