The statement of changes in equity

The statement of changes in equity (SOCE) explains, for each component of equity — share capital, share premium, reserves such as a revaluation surplus, and retained earnings — how the opening balance became the closing balance. Its closing totals are exactly the equity figures on the statement of financial position, so it is the bridge between performance and position.

IAS 1 requires it to show: - Total comprehensive income for the period — profit or loss and other comprehensive income (OCI) — split by component. Profit goes to retained earnings; an OCI item such as a gain on revaluing land goes to its own reserve (the revaluation surplus), not to retained earnings. - Transactions with owners in their capacity as owners, shown separately: share issues, share buy-backs and dividends. These change equity without being performance, which is why they never pass through the income statement. - The effect of any retrospective restatement (a change in policy or correction of a prior-period error), shown as an adjustment to the opening balance.

Two common traps 1. Dividends reduce retained earnings when declared, not when paid. A declared but unpaid dividend is a liability (dividends payable); paying it later just settles that liability and doesn't touch equity again. A dividend proposed after the year end isn't recognised at all at that year end. 2. A share issue above nominal value is split: the nominal amount to share capital and the excess to share premium. Both are contributed capital; neither is income.

The SOCE is also a powerful check. If you know opening and closing equity and the owner transactions, you can solve for profit — a quick way to test a draft set of statements.

US GAAP. The equivalent statement is usually called the statement of stockholders' equity; share premium is additional paid-in capital, and OCI accumulates in accumulated other comprehensive income (AOCI). US GAAP doesn't permit revaluing property, plant and equipment, so a US company would never show a land revaluation line like Ashdown's below.