The statement of changes in equity is a financial statement which details the changes in the equity section of the balance sheet over a given period. For corporations, this statement is also called the statement of shareholder’s equity.
The statement of changes in equity is required annually under U.S. GAAP. Thus, all companies which issue financial securities to outside holders must provide this statement. However, the statement of changes in equity is less common for smaller companies.
Transactions which impact shareholder’s equity include allocation of net profit (or loss), dividends, stock-based compensation, stock repurchases, and issuance of common stock. In addition, certain transactions are recorded directly into equity, such as certain unrealized gains and losses, fair value adjustments, and foreign currency translations.
The statement of changes in equity is usually presented as a separate statement within an annual report, but it can be presented as an addendum to the balance sheet or even presented within the notes to the financial statements.
Investors and creditors generally regard the statement of changes in equity as less important than the income statement, balance sheet, and cash flow statement. However, the statement of changes in equity can provide useful supplementary information to the firm’s capital providers.
