Impact of Industry, operations in foreign currency, type of ownership on Comprehensive Income – The case of Egyptian companies

Abstract

The Egyptian companies are required to prepare the comprehensive income statement recently (one year only). This study thought to explore the practice and its details and some effects via comparing between the effects of net income and comprehensive income in changes in share price. Data collected for companies listed in Cairo Securities Exchange for the financial year 2016/2017. The results support the main hypothesis which is, comprehensive income more related to share price than net income. Details show that the situation differs by industry and ownership. The results are stronger in banks and the financial sector and industrial companies rather than a sector like food or tourism. Companies of the private sector showed more influential impact than state-owned companies. Factors relate to the local market left a clear impact on the results for example gains or losses from foreign currency changes were the most influential component because of the huge imports from many countries. The second influential component was revaluation of available for sale securities because of the size of banks and the financial services institutions in the market whereas hedge for cash flow risk and pension liability proved to be a very weak practice by the Egyptian companies. Introduction: The Financial Accounting Standards Board issued standard No. 130 in 1997 about reporting comprehensive income. The standard requires companies to measure and present net income from operations and other comprehensive income items. In 2007, the IASB revised IAS No. 1 that and emphasized that a statement of comprehensive income should be issued separately as one of the compulsory financial statements. The comprehensive income statement should present net income and specific items that are produce "other income" and those items are: (1) Foreign currency translation gains or losses (2) gains or losses from revaluation of available-for-sale financial securities (3) revaluation gains or losses of tangible or intangible assets (4) changes in market values of hedge contract and (5) actuarial gains or losses on employees' benefits' plan. Some arguments "for" the revised statement acknowledge that it is better to present to users of information the net income of the company from all sources. Views against, consider that it is better to show how much net income the company makes from the main business and it is helpful in evaluation the performance of the company-and the managers-to show that separately from gains (or losses) that result from market factors or other factors beyond control. The Egyptian companies were required to issue a statement of comprehensive income starting from the financial year ended December 2016. There are some questions arise; for example, what is the importance of splitting those items in a separate statement? Does this help users in making decisions? As the previous overview on the Egyptian practice, although companies comply to the ministerial decree and present that statement, many companies did not have items of other compre...