Dual Reporting for Equity and Other Comprehensive Income under IFRS and U.S. GAAP

3 RESERVES

3.1 TERMINOLOGY AND DEFINITIONS OF TERMS

3.1.1 U.S. GAAP Terminology and Practice

In U.S. accounting the word reserves should be used only for appropriations of retained earnings for general or specific purposes.¹ Appropriations of retained earnings must be displayed as part of stockholders' equity.² General purpose contingency reserves displayed as part of equity are examples.³ However, somewhat inconsistently, the term accounting reserve, in its general meaning, sometimes refers to accruing or provisioning expenses for certain purposes to deduct from reported earnings.⁴ In accounting practice, reserve is often used as a synonym for an accrual for estimated liabilities, or valuation allowance, or a specific asset valuation account, as depreciation reserve, LIFO reserve, or bad debts reserve.⁵ Forensic accounting language expands from that (e.g., cookie jar reserves⁶), to mean unrealistically estimated liabilities to stabilize earnings across years. A different utilization of this word exists in the sense of deferred credit.⁷ The use of the term reserve can also be found in the sense of contingent liability or provision in the balance sheet or in the income statement,⁸ sometimes with special meaning. This is the case of reserve for bad debts and general reserves as used in the Internal Revenue Code,⁹ catastrophe reserve accounting,¹⁰ or general reserves of stock savings and loan associations¹¹ or with reference to insurance.¹² According to the AICPA Accounting Trends ...