Comprehensive Income Reporting: Empirical Evidence from the Warsaw Stock Exchange

Abstract

Since 2009, the companies listed on regulated markets in the European Union have been required to present total comprehensive income (CI) and its components in the consolidated financial statements prepared under International Financial Reporting Standards (IFRS). CI is a measure of company income from investor's perspective -it reflects the enhancement of the entity owners' wealth. CI includes the net income (NI) and other comprehensive income (OCI). The change of perspective from which the performance is presented may have an impact on its evaluation and decisions taken by financial information users. This raises the questions of how much CI differs from net income (NI) and what problems are connected with presenting OCI in financial statements of public companies in Poland, for which CI reporting is still a new requirement. The paper has been based on literature review, analysis and interpretation of International Accounting Standard 1 (IAS 1), and a review of consolidated financial statements for the years 2010-2011 of 140 companies, listed on the Warsaw Stock Exchange (WSE).The conducted analysis has been the basis for the main conclusion that the usefulness of the statements of CI of the companies, listed on the WSE, for explaining changes in entities' shareholder wealth is very limited because the majority of the companies do not present material OCI and its components.

Usefulness of comprehensive income statement – preliminary study on the example of companies from the WIG30 index

“…Therefore, since the impact of OCI on the financial situation of an enterprise is usually not material -as confirmed by the results of survey presented in this paper, as well as surveys of other authors, e.g. Frendzel and Szychta (2013), Sajnóg (2018) -potential investors are probably not willing to devote their time and work to the detailed analysis of the notes supplementing the financial statements. On the other hand, some of the items of OCI, such as actuarial gains/losses or the effects of applying cash flow hedge accounting principles, sometimes have a very significant impact on the level of total income, what has been confirmed not only in this paper, but also in previous studies (Bek-Gaik, 2013b).…”

“…Hence, obligation introduced in IAS 1 to prepare the statement of comprehensive income should be considered as important as it increases the usefulness of financial statement. While the lack of its uniform structure limits the comparability of the OCI's effects among various entities, the obligation to present information at a minimum cross-section of components subject to and not subject to reclassification to profit or loss should be considered as an aspect that significantly increases the usefulness of this report, allowing for forecasting future financial results, which was also noted by Frendzel and Szychta (2013) and Sajnóg (2018). To sum up, the introduction of an obligation (for entities reporting under IAS/ IFRS) to prepare a statement of comprehensive income should be considered important for the increase of the usefulness of financial statements.…”

“…Moreover, a large part of the study corresponds and updates the conclusions presented in Frendzel and Szychta study (2013). According to their conclusions, the usefulness of comprehensive income on the Polish stock market may be considered significantly limited, as most entities do not disclose the other comprehensive income at all (Frendzel and Szychta, 2013).…”

“…The application of comprehensive income instead of net income in the calculation of ROE may significantly affect its value Takahashi and Wong (2012) 2000-2010 24,949 observations Net income increased by aggregated other comprehensive income is a measure more useful than the net income itself Frendzel and Szychta (2013)…”

Porównywalność sprawozdań ze zmian w kapitale własnym na przykładzie spółek notowanych na GPW w Warszawie

“…Wyjątek dotyczy jedynie prezentacji całkowitych dochodów w sprawozdaniu (sprawozdaniach) z wyniku i pozostałych całkowitych dochodów (np. Walińska, Bek-Gaik, 2011;Frendzel, Szychta, 2013;Gad, 2014). W przypadku sprawozdania ze zmian w kapitale własnym autorka znalazła tylko cztery publikacje dotyczące praktyki polskich spółek giełdowych w tym zakresie.…”