Value Relevance Of Comprehensive Income And Net Income

Abstract :

The issue of reporting comprehensive income generally derives from the long-standing debate about reporting income via the “current operating performance” or the “all-inclusive” concept (Brief, Peasnell, 1996; Khan et al., 2018). It itself triggers discussions on the usefulness of accounting information about earnings. The key actors in this dispute are net income and comprehensive income. The paper contains a broad review of studies on value relevance of comprehensive income and net income. It also contains a proposal for a classification framework of value relevance studies on comprehensive income, which is is based on methodologies developed by various authors. The paper discusses the results of 31 value-relevance studies on the issue of usefulness of comprehensive income as well. The multidimensional analysis is aimed at answering the question, whether the comprehensive income is a more useful (more value relevant) measure of the company's performance for investors. The conclusions of the analysis indicate that it is not clear which measure is more useful (more value relevant). One of the factors influencing research results may be the fact it still remains unclear what items could be presented in other comprehensive income and what their economic nature is. Unfortunately, that the new Conceptual Framework for Financial Reporting (2018) has not resolved the issue.