Statement of Recognized Income and Expense (SORIE)

Definition

Statement of Recognized Income and Expense (SORIE) refers to an older accounting term used to describe what is now known as the statement of comprehensive income. This financial statement provides a summary of a company’s total recognized gains and losses over a specific period, capturing both operating results and other comprehensive income items that are not included in the traditional income statement.

Detailed Explanation

The SORIE was used in financial accounting to represent a broader view of a company’s financial performance than the traditional income statement. It incorporated various components of income and expenses that affected shareholders’ equity but were not reported in the traditional profit and loss statement. With the adoption of International Financial Reporting Standards (IFRS) and improvements in financial reporting standards, SORIE has been integrated into the statement of comprehensive income.

The statement of comprehensive income includes:

• Net income: Derived from the regular operations of the company.
• Other comprehensive income (OCI): Includes items such as foreign currency adjustments, unrealized gains or losses on certain investments, pension plan gains or losses, and cash flow hedges.

The goal is to provide a holistic view of all changes in equity that are not a result of transactions with owners.

Examples

1. Company XYZ: XYZ Corporation reports a net income of $500,000 for the year. Additionally, they have an unrealized gain on available-for-sale securities amounting to $50,000 and a foreign currency translation loss of $10,000. The comprehensive income for XYZ Corporation would be $500,000 (net income) + $50,000 (unrealized gain) - $10,000 (translation loss) = $540,000.

2. Company ABC: ABC Ltd. has a net income of $200,000. It also reports a revaluation surplus of $30,000 on its land assets and a pension plan actuarial loss of $5,000. The comprehensive income would be $200,000 (net income) + $30,000 (revaluation surplus) - $5,000 (pension loss) = $225,000.

Frequently Asked Questions (FAQs)

Q1: What replaced the SORIE in modern financial statements? A1: The SORIE has been replaced by the statement of comprehensive income under IFRS and other updated accounting standards.

Q2: What is the main purpose of the statement of comprehensive income? A2: The main purpose is to provide a complete summary of the company’s net income along with other comprehensive income, offering a holistic view of total changes in equity.

Q3: What types of items are included in “Other Comprehensive Income”? A3: Other comprehensive income typically includes foreign currency translation adjustments, gains/losses on available-for-sale securities, cash flow hedges, revaluation surplus, and actuarial gains/losses on defined benefit pension plans.

Q4: Are dividends included in the statement of comprehensive income? A4: No, dividends are not included in the statement of comprehensive income. They are considered transactions with owners and are reported separately.

Q5: How often is the statement of comprehensive income prepared? A5: It is usually prepared annually, although many companies also prepare interim (quarterly) statements of comprehensive income.

Related Terms with Definitions

1. Comprehensive Income: The total of all revenues, gains, expenses, and losses affecting equity that are not a result of transactions with owners.

2. Income Statement: A financial statement that shows a company’s financial performance over a specific accounting period, focusing primarily on revenue and expenses resulting in net income or loss.

3. Other Comprehensive Income (OCI): Components of comprehensive income that are excluded from net income and instead recognized in equity.

Online Resources

1. IFRS Foundation - Conceptual Framework
2. IAS Plus - Comprehensive Income
3. FASB - Financial Accounting Standards Board

Suggested Books for Further Studies

1. “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
2. “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
3. “Accounting Principles” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso

Accounting Basics: “Statement of Recognized Income and Expense (SORIE)” Fundamentals Quiz

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