Other Comprehensive Income has appeared in a couple of different posts recently.  It plays a role in pension accounting (see “is it time to fix accounting for pensions”).  The blog also reported that the FASB recently restricted the potential methods for disclosing OCI. The latter post raised some general questions about distinctions between net income and OCI.

After considering the pension issues raised by Phil, I thought of another way to discuss the issue.  What is your favorite OCI item?  In other words, which current-period change in the value of an asset or liability do you prefer be excluded from Net Income?

From Ray’s response to the earlier post, I am guessing he has not yet met an OCI item he likes.

My favorite is the gain or loss on a derivative that is an effective cash flow hedge.  Suppose the company reports the gain on the derivative in net income this period.  The company (by definition of effectiveness) automatically recognizes a loss of an equal amount in future earnings.  Note that in the vernacular of permanent vs transitory earnings, the effective hedge gain is NEGATIVELY persistent.  While I have never liked the term “value irrelevant earnings,” effective hedge gains/losses comes the closest to being a value irrelevant component of income as any I can think of.

Do you have a favorite?