March 30 (Bloomberg) — Depending on how you look at it, Bank of America Corp. last year had a $1.4 billion profit or a $3.9 billion loss. Both figures are accurate. The big difference is that the second one is harder to find in the company’s financial reports.
To locate the first number, known as net income, simply check the bottom of Bank of America’s income statement. The other figure, called comprehensive income, is buried deep in the company’s statement of changes in shareholder equity, where the loss is easy for readers to miss.
That system of financial reporting is about to change. Starting with first-quarter results, U.S. public companies will be required to give greater prominence to comprehensive income in their securities filings, under new rules passed by the Financial Accounting Standards Board. Unfortunately the board didn’t go far enough, because it still gives companies cover to claim that the two earnings metrics aren’t equally important.
While the issue might seem arcane, the implications are far-reaching. Before Fannie Mae and Freddie Mac were seized by the government in 2008, they had accumulated about $30 billion of comprehensive losses that they excluded from their conventional earnings and regulatory capital. Those losses helped doom the two housing-finance companies. Changing the rules to make such troubles more obvious can only help.
Copyright 2012 The National Memo