Statement of total recognised gains and losses

The statement of total recognised gains and losses (STRGL) gives investors a summary of a company's gains and losses regardless of whether or not they were shown in the P & L or the balance sheet.

The STRGL is a primary statement, and should be given the same prominence as the P & L, the balance sheet and the cashflow. It is given this prominence in published accounts, but investors rarely pay much attention

The starting point of the statement of total recognised gains and losses is the profit for the year (profit after tax, before the payment of dividends) and this is followed by other gains and losses — changes in the value of items shown on the balance sheet.

The statement of total recognised gains and losses will typically look something like this:

Profit for the financial year 200
Revaluation of property (unrealised) 20
Currency translation differences (50)
Total recognised gains (losses) for the year 170
Prior year adjustment (20)
Total gains and losses recognised since the last year 150

The prior year adjustment is a change in profit in the previous year due either to an error or (more likely) a change in accounting policy (to bring reporting in line with current accounting standards). This prior year adjustment should include the cumulative effect over all prior years.

The gains and losses made for the period do not completely explain all changes in shareholders' equity. This is because shareholders funds are also changed by share buybacks, new issues and dividends.

A reconciliation should be provided that will look something like this

Total recognised gains for the year 150
Dividend (50)
New share capital 200
Net addition to shareholders funds 300

The STRGL helps prevent an important class of manipulations of accounts. By requiring that all changes to the balance sheet are shown, it highlights any attempt to move losses to the balance sheet without passing them through the P & L. It may not provide as much material for analysis as the other primary statements, but it should still be looked at.