Usefulness of comprehensive income statement – preliminary study on the example of companies from the WIG30 index
Abstract: The financial result of a company is undoubtedly the most frequently analyzed category in making economic decisions. The changing needs of financial statements users resulted in the replacement of the classic financial result with the broader concept of comprehensive income, which was regulated in the International Accounting Standard 1 Presentation of financial statements. As a result a statement of the entity's comprehensive income is created. An important element analyzed by the scientific community is the … Show more
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The concepts of profit in economics and accounting. IAS/IFRS accounting standards perspective The nature of profit has been one of the central problems of economics and accounting for centuries. However, the academic attention paid to this area is still well justified. Indeed, to date, neither economic theory nor accounting theory has developed a single, universal definition of profit, although the concept is commonly used by most people. It can therefore be argued that profit is a perfect research problem (because of the multiplicity of possible interpretations) and at the same time paradoxical (because of its common understanding). As a result, it has been an extremely interesting research challenge to investigate whether the interpretation of profit from the perspective of similar and related fields of study – economics and accounting – actually differs significantly With the progress of the broader economy and the development of the capital market, an evolution in accounting science and practice can be observed, reflected, among other things, in the implementation of the comprehensive income concept in US and, subsequently, International Accounting Standards. This measure, which is the de facto modern definition of profit, expresses the periodic change in an entity’s equity that has occurred as a result of transactions and other events, excluding changes resulting from transactions with owners in their capacity as owners. Therefore, the comprehensive income includes holistically the effects of transactions and changes in the value of assets and liabilities, irrespective of whether they are recognized in net income or are equity-settled. The aim of this development is to bring the traditionally understood net income closer to the economic income, which is inextricably linked to the growing importance of fair value measurement. Despite the lapse of more than 25 years since its implementation in US accounting standards and 15 years since its implementation in international accounting standards, the comprehensive income concept is still controversial. This is because a conceptual framework that clearly identifies the economic meaning of the comprehensive income has still not been developed. This notion refers primarily to the issue of recognition of other comprehensive income. This category was intended to be an extension of information on the traditionally understood accounting profit (net income), but is now a set of items of a diverse nature that can and, as research shows, are not understood by stakeholders. Therefore, this work, in the context of the modern concept of profit, by which is meant the comprehensive income, deals in particular with aspects related to the problem of recognition and presentation of information on other comprehensive income. The general objective of this monograph is to compare the nature of the profit and the principles of its measurement in economic theory and accounting theory and to identify the nature and current principles of qualifying the components of other comprehensive income to the comprehensive income, with particular reference to the criteria for the classification of components of other comprehensive income in the comprehensive income. As the considerations outlined in this work demonstrate, the concept of economic profit had a strong influence on the development of the concept of net income in accounting, has been positively verified. The considerations outlined in the monograph, although representing only a modest part of the extremely rich heritage of economic thought and accounting theory, provide an insight into the close relationship between economic profit and accounting profit. The review of economic profit concepts has shown that some of their interpretations are timeless and, most importantly, closely related to the perception from the perspective of accounting. The concept presented by J.R. Hicks can currently be taken as a model view of economic profit. According to it, profit is nothing more than a periodic surplus over the maintenance of human wealth. A similar approach, albeit from the perspective of an economic entity, is also found in accounting theory. The key to identifying the relationship between economic profit and accounting profit is to understand the concept of wealth, defined by J.R. Hicks as the present value of a person’s future economic benefits. Translated to business entities, economic profit can be viewed as the difference between the present value of equity (i.e. the economic benefits generated by the business) at the end of the period and the present value of equity at the beginning of the period. In practice, therefore, economic profit can be equated with the increase in the value of the enterprise, which is a measure of its prosperity. This would only be achieved in accounting standards if all assets and liabilities were valued at current values, which, in view of the difficulties of valuation on the basis of the abovementioned standards and the widespread use of historical cost, can only be regarded as an abstraction or utopia. However, as economies and capital markets have developed, accountants have sought to bring accounting profit, as traditionally understood, closer to economic profit, as reflected in the growing importance of fair value measurement and the introduction of the comprehensive income concept into accounting standards. The analysis of the IAS/IFRS rules in the area of recognition and presentation of information on comprehensive income (including other comprehensive income in particular), which was presented in chapter two, showed that the indicated contemporary concept of income can still be controversial and misunderstood by various stakeholder groups. This is because it often requires highly specialized knowledge and acceptance of the principles developed by the IASB for the recognition and presentation of information on other comprehensive income, which, it should be emphasized, are not entirely clear and consistent. This conclusion is surprising given that the category of other comprehensive income has existed in accounting standards for many years. Thus, in the area of regulatory formulation in the area of the comprehensive income, the Board seems to have moved away from the principle-based approach, which is standard for IAS/IFRS setting, to an approach based on its internal judgements, which can be tentatively characterized as an “IASB-based approach”. This monograph therefore brings together and systematizes knowledge about the comprehensive income, addressing the difficulties of understanding it. In this context, it should be emphasized that accounting should be seen as a science that develops inductively. Its evolution is therefore conditioned by the progressive development of the wider market. Undoubtedly, the concept of the comprehensive income, understood in this thesis as the modern concept of income, will change, and the directions of change will be determined by practice.
The concepts of profit in economics and accounting. IAS/IFRS accounting standards perspective The nature of profit has been one of the central problems of economics and accounting for centuries. However, the academic attention paid to this area is still well justified. Indeed, to date, neither economic theory nor accounting theory has developed a single, universal definition of profit, although the concept is commonly used by most people. It can therefore be argued that profit is a perfect research problem (because of the multiplicity of possible interpretations) and at the same time paradoxical (because of its common understanding). As a result, it has been an extremely interesting research challenge to investigate whether the interpretation of profit from the perspective of similar and related fields of study – economics and accounting – actually differs significantly With the progress of the broader economy and the development of the capital market, an evolution in accounting science and practice can be observed, reflected, among other things, in the implementation of the comprehensive income concept in US and, subsequently, International Accounting Standards. This measure, which is the de facto modern definition of profit, expresses the periodic change in an entity’s equity that has occurred as a result of transactions and other events, excluding changes resulting from transactions with owners in their capacity as owners. Therefore, the comprehensive income includes holistically the effects of transactions and changes in the value of assets and liabilities, irrespective of whether they are recognized in net income or are equity-settled. The aim of this development is to bring the traditionally understood net income closer to the economic income, which is inextricably linked to the growing importance of fair value measurement. Despite the lapse of more than 25 years since its implementation in US accounting standards and 15 years since its implementation in international accounting standards, the comprehensive income concept is still controversial. This is because a conceptual framework that clearly identifies the economic meaning of the comprehensive income has still not been developed. This notion refers primarily to the issue of recognition of other comprehensive income. This category was intended to be an extension of information on the traditionally understood accounting profit (net income), but is now a set of items of a diverse nature that can and, as research shows, are not understood by stakeholders. Therefore, this work, in the context of the modern concept of profit, by which is meant the comprehensive income, deals in particular with aspects related to the problem of recognition and presentation of information on other comprehensive income. The general objective of this monograph is to compare the nature of the profit and the principles of its measurement in economic theory and accounting theory and to identify the nature and current principles of qualifying the components of other comprehensive income to the comprehensive income, with particular reference to the criteria for the classification of components of other comprehensive income in the comprehensive income. As the considerations outlined in this work demonstrate, the concept of economic profit had a strong influence on the development of the concept of net income in accounting, has been positively verified. The considerations outlined in the monograph, although representing only a modest part of the extremely rich heritage of economic thought and accounting theory, provide an insight into the close relationship between economic profit and accounting profit. The review of economic profit concepts has shown that some of their interpretations are timeless and, most importantly, closely related to the perception from the perspective of accounting. The concept presented by J.R. Hicks can currently be taken as a model view of economic profit. According to it, profit is nothing more than a periodic surplus over the maintenance of human wealth. A similar approach, albeit from the perspective of an economic entity, is also found in accounting theory. The key to identifying the relationship between economic profit and accounting profit is to understand the concept of wealth, defined by J.R. Hicks as the present value of a person’s future economic benefits. Translated to business entities, economic profit can be viewed as the difference between the present value of equity (i.e. the economic benefits generated by the business) at the end of the period and the present value of equity at the beginning of the period. In practice, therefore, economic profit can be equated with the increase in the value of the enterprise, which is a measure of its prosperity. This would only be achieved in accounting standards if all assets and liabilities were valued at current values, which, in view of the difficulties of valuation on the basis of the abovementioned standards and the widespread use of historical cost, can only be regarded as an abstraction or utopia. However, as economies and capital markets have developed, accountants have sought to bring accounting profit, as traditionally understood, closer to economic profit, as reflected in the growing importance of fair value measurement and the introduction of the comprehensive income concept into accounting standards. The analysis of the IAS/IFRS rules in the area of recognition and presentation of information on comprehensive income (including other comprehensive income in particular), which was presented in chapter two, showed that the indicated contemporary concept of income can still be controversial and misunderstood by various stakeholder groups. This is because it often requires highly specialized knowledge and acceptance of the principles developed by the IASB for the recognition and presentation of information on other comprehensive income, which, it should be emphasized, are not entirely clear and consistent. This conclusion is surprising given that the category of other comprehensive income has existed in accounting standards for many years. Thus, in the area of regulatory formulation in the area of the comprehensive income, the Board seems to have moved away from the principle-based approach, which is standard for IAS/IFRS setting, to an approach based on its internal judgements, which can be tentatively characterized as an “IASB-based approach”. This monograph therefore brings together and systematizes knowledge about the comprehensive income, addressing the difficulties of understanding it. In this context, it should be emphasized that accounting should be seen as a science that develops inductively. Its evolution is therefore conditioned by the progressive development of the wider market. Undoubtedly, the concept of the comprehensive income, understood in this thesis as the modern concept of income, will change, and the directions of change will be determined by practice.
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