Quick answer
The statement of changes in equity explains how every component of owners’ interest moved from the beginning of a reporting period to the end. It separates profit or loss and other comprehensive income from contributions, dividends, and other owner transactions.
A balance sheet shows equity at one date. This statement explains the movement between two dates. It starts with each opening balance, adds or subtracts the events assigned to that component, and arrives at the closing balances reported on the balance sheet.
A statement of retained earnings is a narrower reconciliation of that single component. A statement of changes in equity also follows share capital, accumulated OCI, and any other material equity components.
Equity balances and period changes
The statement reconciles opening and closing equity components. Profit usually increases retained earnings; a loss reduces it. Other comprehensive income changes the related accumulated equity component. Share issues change share capital, while dividends reduce retained earnings without becoming an expense. The closing balances agree to the balance sheet, and the related cash from share issues and dividends paid appears in the cash flow statement.
Structure of the reconciliation
Read down one column to understand a component, then across one row to understand an event. Keeping the components and sources of change separate explains why total equity changed.
Reconcile North Shore Studio’s 2026 equity
North Shore Studio applies IFRS and begins 2026 with $80,000 of share capital and $24,000 of retained earnings. It issues shares for $20,000, earns $18,000 of profit, records $3,000 of other comprehensive income in a separate accumulated component, and declares $5,000 of dividends.
Scroll horizontally to see all columns.
| Movement | Share capital | Retained earnings | Accumulated OCI | Total equity |
|---|---|---|---|---|
| Opening balance | 80,000 | 24,000 | — | 104,000 |
| Shares issued | 20,000 | — | — | 20,000 |
| Profit for the year | — | 18,000 | — | 18,000 |
| Other comprehensive income | — | — | 3,000 | 3,000 |
| Dividends declared | — | (5,000) | — | (5,000) |
| Closing balance | 100,000 | 37,000 | 3,000 | 140,000 |
The closing total is $100,000 + $37,000 + $3,000 = $140,000. The balance sheet must report the same total and preserve the material components rather than presenting the reconciliation as one unexplained net change.
Framework and entity detail
IFRS requires a reconciliation for each component of equity and distinguishes profit or loss, other comprehensive income, and transactions with owners in their capacity as owners. For a group that combines a parent company with controlled subsidiaries, a consolidated statement also separates amounts attributable to owners of the parent and non-controlling interests—the equity in subsidiaries that is attributable to owners outside the parent company.
Under ASPE Section 3251, specified changes and components of equity are also presented separately, including gains and losses recorded directly in equity by nature. ASPE does not use the IFRS OCI model merely because an item bypasses net income: own shares, reserves, capital transactions, and liability-versus-equity classification follow their separate Part II sections. The IFRS specimen above is therefore not a universal ASPE format.
Common reading errors
- Treating every increase in equity as revenue or profit.
- Subtracting dividends in the income statement instead of showing them as owner distributions.
- Combining OCI with retained earnings merely because both sit within equity.
- Failing to reconcile closing component balances to the balance sheet.