The statement of changes in equity is a financial statement that shows how each component of a company's equity moved between the start and the end of a reporting period. It explains why the owners' interest in the business grew or shrank: through profit or loss, through other gains and losses recognised directly in equity, and through transactions with the owners themselves, such as share issues, buybacks and dividends. Investors, lenders and regulators use it to see how much of the change in net assets was earned and how much was contributed or withdrawn.
Under International Financial Reporting Standards it is one of the primary financial statements, presented alongside the balance sheet, the statement of profit or loss and other comprehensive income, and the statement of cash flows. Its US counterpart is the statement of stockholders' equity.
What the statement shows
The requirements come from IAS 1. The statement must present:
- Total comprehensive income for the period. This is shown in total, with separate amounts attributable to owners of the parent and to non-controlling interests.
- Effects of restatements. For each component of equity, the effect of applying a new accounting policy retrospectively or correcting a prior-period error is shown as an adjustment to the opening balance.
- A reconciliation for each component. For share capital, each reserve and retained earnings, the statement reconciles the opening and closing carrying amounts, separately disclosing changes from profit or loss, from other comprehensive income and from transactions with owners.
Dividends recognised as distributions to owners during the period, and the related amount per share, are given either in the statement itself or in the notes.
Layout
The usual format is a grid. Each column is a component of equity and each row is a type of movement, so that reading down a column takes the reader from the opening balance to the closing balance. Typical columns are:
- Share capital, representing the nominal value of issued share capital.
- The share premium account.
- A deduction for own shares held as treasury shares.
- Reserves that accumulate items of other comprehensive income, such as translation, hedging and revaluation reserves.
- Retained earnings.
- Non-controlling interests, followed by total equity.
Rows usually begin with the opening balance and any restatement, followed by profit for the period and other comprehensive income, then transactions with owners: shares issued, share-based payment credits, a share buyback, each dividend paid and changes in ownership of subsidiaries that do not result in loss of control. Comparative figures for the previous period are presented in the same way.
Owner and non-owner changes
The central idea behind the statement is the separation of two kinds of change. Non-owner changes are the entity's performance: profit or loss plus other comprehensive income, together called comprehensive income. Their detail is given in the performance statement, and only the totals for each component are carried into the statement of changes in equity. Owner changes are transactions with shareholders acting as shareholders. These never pass through profit or loss and appear only here.
This separation dates from a revision of IAS 1 that took effect in 2009. Before then, entities could present certain gains and losses within the equity statement itself, which made performance harder to see in one place.
How analysts use it
The statement answers questions that other statements leave open. It shows how much capital was raised or returned during the year, the cost of shares bought back, and the extent to which dividends were covered by profit. It reveals movements in reserves that can later be recycled to profit or loss, such as cash flow hedge and currency translation reserves, and transfers between reserves. For banks and insurers it is a starting point for reconciling accounting equity to regulatory capital. Restatement rows flag changes in accounting policy and the correction of errors, each of which is a form of prior period adjustment.
Other frameworks and recent changes
US accounting rules require a reconciliation of changes in stockholders' equity, which may be given as a separate statement or in the notes, and US listed companies also provide it for interim periods. Small entities under some frameworks may present a simpler statement of retained earnings where the only changes in equity arise from profit, dividends and corrections.
IAS 1 is being replaced by IFRS 18, on presentation and disclosure in financial statements, for annual periods beginning on or after 1 January 2027. The new standard concentrates on the structure of the statement of profit or loss; the requirements for the statement of changes in equity are carried forward largely unchanged.