By Richard Levychin, CPA

Readers of company financial statements will be greeted with new terminology on 2009 income statements.  What used to be called “net income,” the time-honored bottom line basic measurement of a company’s performance is receiving a makeover.

In December of 2008, the Financial Accounting Standards Board (the “FASB”) took another giant leap towards global accounting convergence when it issued a new rule on how to account for minority interests, one of FASB's  more significant recent changes.  Under SFAS No. 160, noncontrolling interests (minority interests) are recorded as a separate line item under equity and not as a ‘mezzanine’ item as previously required.  A minority interest is the portion of a controlled subsidiary that is owned by someone other than the parent company.  Because the parent is deemed to control the subsidiary, it must consolidate the subsidiary’s financial statements into its own.  (For more information on SFAS No. 160, see related KBL article “SFAS 160 and the New Accounting for Minority Interests” featured in KBL's Public Company Report Second Quarter 2009).

In addition to moving minority interest to the equity section of the balance sheet, FASB has also changed its name to “noncontrolling interests.” However, this is not the only terminology change that readers will be seeing on financial statements.

What historically was called “net income” will now be called “net income attributable to the company.” While FASB created the change to give investors more detail about companies’ investments, some experts feel that the improvement is marginal at best, and are making things more complicated.

The change requires companies to report net income before and after income from noncontrolling interests. Accordingly, the time honored bottom line description “net income” is no longer the bottom line. For companies with noncontrolling interests, what used to be called "net income" is now called "net income attributable to" the parent company. The presentation and terminology change but the calculations and numbers stay the same.

Please see sample presentation below for XYZ, Inc:

Net Income	$10
Noncontrolling interests.	4
Net income attributable to XYZ, Inc	$6

In previous years the $6 was called "net income".

The above change has no effect on the bottom line number as companies have always excluded income from noncontrolling interests in their net income bottom lines. However, because noncontrolling interests will now be also presented in the equity section of the balance sheet as opposed to being presented between the liabilities and shareholder equity sections of the balance sheet, noncontrolling interests will now figure into calculations of shareholder equity.

And that's the bottom line.

Any tax advice in this communication is not intended or written by KBL, LLP to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer, or (ii) promoting, marketing, or recommending to another party any matters addressed herein. With this alert, KBL, LLP is not rendering any specific advice to the reader.