Statement of Changes in Equity

Statement of Changes in Equity is the reconciliation between the opening balance and closing balance of shareholder’s equity. It is a financial statement which summarises the transactions related to the shareholder’s equity over an accounting period. Movement in retained earnings, other reserves and changes in share capital such as the issue of new shares and payment of dividends are recorded in this report.

Why is the Statement of Changes in Equity Needed?

The difference between the assets and liabilities from one accounting period to the next will give you the movement in equity. This information can be obtained from the balance sheet of the entity. However, this will not provide the details of the changes that have happened in the equity and for this purpose, this statement of changes in equity is required. Under Indian GAAP, there is no requirement for this statement; however, Schedule III of the Companies Act 2013 requires such movement in shareholder’s equity to be presented as part of notes to accounts. As per the IND AS, this statement of changes in equity is to be presented and it includes the following:

• Reconciliation of the opening and closing balances of equity, describing the changes in detail.
• Details of comprehensive income for the accounting period.
• Details of changes and the impact when components of equity are restated or applied retrospectively in accordance with the IAS/Ind-AS 8.

Comprehensive income is those income listed after the net income on the income statement.

Components of Shareholder’s Equity

A statement of equity generally summarises the changes in the equity components listed below:

• For each class of contributed equity, the accumulated balance of ‘other comprehensive income’, and ‘retained earnings’.
• In terms of non-cash assets, the increase or decrease in the carrying amount which is distributed to the owners as a result of changes in the fair value of such assets.
• Changes in the equity share capital and other equity during the accounting period of:
  • Changes in accounting policy
  • Prior period errors
  • Total comprehensive income
  • Dividends
  • Transfers to retained earnings (it is the accumulated earnings from the beginning of the operations net of dividends paid or any restatement adjustments)
  • Any other changes
• With respect to changes in other equity, the following are to be disclosed:
  • Share application money – pending allotment
  • Compound financial instrument’s equity component
  • Reserves and surplus such as capital reserve, securities premium reserve, etc.
  • Revaluation surplus
  • Cash flow hedges gain/loss
  • When a financial statement of a foreign operation is translated, the related exchange difference
  • Debt and equity instruments through other comprehensive income etc.
• Changes in other reserves including:
  • Capital redemption reserve
  • Debenture redemption reserve
  • Others – with descriptive information of nature and purpose of each reserve
• Changes due to the re-measurement of defined benefit plans etc.

Need for Statement of Changes in Equity

As seen above, the Statement of Equity provides detailed information about the movements in the equity share capital over an accounting period which is not provided elsewhere in the financial statements. Such details will be helpful for the shareholders and investors to make informed decisions regarding their investments.

*More detailed notes related to the Statement of Changes in Equity are generally presented as commentaries to such statement.