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

6 RETAINED EARNINGS

6.1 TERMINOLOGY AND DEFINITIONS OF TERMS

6.1.1 Terminology

Both U.S. GAAP and IFRSs use the term retained earnings.

Comment: The 2007 revision of IAS 1 substituted the term retained earnings for the expressions “accumulated profits” or “accumulated profit or loss” that were previously used.¹

An alternative terminology used in U.S. GAAP is earned surplus,² as opposed to capital surplus (additional paid-in capital, that is, surplus minus earned surplus). The term surplus generally indicates the excess of net assets over stated capital.

Comment: The importance of the concept of surplus from a defense of legal capital perspective is discussed in Section 3.5.2.2 previously. Earned surplus, or better earned capital, also has a relation with the “invested and earned equity” model, as opposed to the residual interest model. This is discussed in Section 2.1.4.2 (2) previously.

Comment: The expression earned surplus was criticized by ATB 1, which acknowledged the use of alternative expressions, such as cumulative balance of profit and loss (or income), undivided profits, retained income, retained earnings, or accumulated earnings, suggested its discontinuance, and recommended terminology that indicated source, such as retained earnings, retained income, accumulated earnings, or earnings retained for use in the business.³

Comment: The term surplus survives in IFRSs with reference to revaluation surplus, to distributable surplus for insurers' contracts with discretionary ...