Does the Reporting Location of Other Comprehensive Income Matter? The Investor's Perspective

Abstract

In the context of changes mandated by the Chinese Ministry of Finance in January 2009 regarding the location in which other comprehensive income (OCI) is reported, this paper finds that reporting OCI on the performance statement significantly improves its value relevance. The improvement is driven by two OCI items: unrealised holding gains/losses on available‐for‐sale securities and the share of other comprehensive income of investees under the equity method. Our results show that the OCI reporting location matters, which supports the psychological perspective that investors pay more attention to salient information. Our findings lend strong support to the approach of standard setters in reporting OCI on the performance statement.

Audit Quality, Climate Risk Disclosures and Ethical Guidance (eCode)

“…Of the remaining articles in this issue, Wang et al. () and Czernknowski and Lim (2019) address important accounting issues: other comprehensive income and accrual accounting in the public sector. More specifically, Wang et al.…”

“…More specifically, Wang et al. () provide evidence that capital markets value items of other comprehensive income to be reported in a single statement rather than in two statements. Czernkowski and Lim (2019) examine incentives for Australian local governments to undertake revaluations of major infrastructure assets.…”

“…The first four look at various dimensions of audit quality, while Smidt et al (2019) and Mubako (2019) discuss internal audit. Of the remaining articles in this issue, Wang et al (2019) and Czernknowski and Lim (2019) address important accounting issues: other comprehensive income and accrual accounting in the public sector. More specifically, Wang et al (2019) provide evidence that capital markets value items of other comprehensive income to be reported in a single statement rather than in two statements.…”

“…Of the remaining articles in this issue, Wang et al (2019) and Czernknowski and Lim (2019) address important accounting issues: other comprehensive income and accrual accounting in the public sector. More specifically, Wang et al (2019) provide evidence that capital markets value items of other comprehensive income to be reported in a single statement rather than in two statements. Czernkowski and Lim (2019) examine incentives for Australian local governments to undertake revaluations of major infrastructure assets.…”

The value relevance of Other Comprehensive Income: Extensive evidence from Europe

“…Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. Comprehensive income can show the return that a company has made on its economic assets and then improve the decision‐making process of financial statement users (Chambers, Linsmeier, Shakespeare, & Sougiannis, 2007; Wang, Jiang, & Lu, 2019). Total comprehensive income encompasses all constituents of “profit or loss” and of “other comprehensive income” (OCI).…”