Bridge over troubled water: Is it possible to define other comprehensive income?

Journal title FINANCIAL REPORTING
Author/s Thomas Ryttersgaard
Publishing Year 2021 Issue 2021/1
Language English Pages 27 P. 61-87 File size 104 KB
DOI 10.3280/FR2021-001003
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

Although other comprehensive income did not exist in the conceptual framework until 2018, it has been a part of IFRS for many years, and it has not been defined based on accounting theory. This paper considers arguments for the current use of other comprehensive income under IFRS and finds that matching and prudence are at the core of other comprehensive income in IFRS despite not being elements of the conceptual framework. This suggests that the concept of other comprehensive income exists because the IFRS standards are founded on a mix of balance sheet-based and income statement-based accounting principles. Based on the characteristics of other comprehensive income and the IASB’s arguments for the recognition of gains and losses in other comprehensive income, this paper proposes a definition of other comprehensive income that can be used to ensure a uniform application of the concept across accounting standards and to reduce risks of inconsistency.

Keywords: Financial reporting, other comprehensive income, conceptual framework, measurement

Jel codes: M41

  1. Barker R. (2004), Reporting financial performance, Accounting horizons, 18(2): 157-172.
  2. Barker R. and Penman S. H. (2017), Moving the conceptual framework forward: Accounting for uncertainty, Contemporary Accounting Research.
  3. Barker R., and Schulte S. (2017), Representing the market perspective: Fair value measurement for non-financial assets, Accounting, Organizations and Society 56: 55-67.
  4. Barth M. E. (1994), Fair value accounting: Evidence from investment securities and the market valuation of banks, Accounting Review, 1-25.
  5. Barth M. E. (2018), The Future of Financial Reporting: Insights from Research, Abacus, 54(1): 66-78.
  6. Barth M. E., Beaver W. H., and Landsman W. R. (2001), The relevance of the value relevance literature for financial accounting standard setting: another view, Journal of accounting and economics, 31(1-3): 77-104.
  7. Barton J., Bowe Hansen T., and Pownall G. (2010), Which performance measures do investors around the world value the most – And why?, The Accounting Review, 85(3): 753-789.
  8. Bedford N. M. and Ziegler R. E. (1975), The contributions of AC Littleton to accounting thought and practice, The Accounting Review, 50(3): 435.
  9. Bertoni M. and De Rosa B. (2013). Comprehensive Income, Fair Value, and Conservatism: A Conceptual Framework for Reporting Financial Performance (March 25, 2013), 5th International Conference «Economic Integration, competition and cooperation», Croatia, Opatija, 2005.
  10. Biddle G. C., and Choi J.-H. (2006), Is comprehensive income useful?, Journal of Contemporary Accounting & Economics, 2(1): 1-32.
  11. Black D. (2016), Other comprehensive income: a review and directions for future research, Accounting and Finance.
  12. Brief R. P. and Peasnell K. V. (eds) (2013), Clean surplus: A link between accounting and finance, (Routledge).
  13. Cilloni A., Marinoni M. A. and Merino B. (2013), Comprehensive Income, An Historical Perspective. The Development Of Proprietorship And Entity Theories, An International Approach, European Journal of Accounting, Finance & Business, 1(1), pp. 56-78.
  14. Chambers D., Linsmeier T., Shakespeare C., and Sougiannis T. (2007), An evaluation of SFAS No. 130 comprehensive income disclosures, Review of Accounting Studies, 12, pp. 557-593. Dhaliwal Dan, Subramanyam K. R., and Trezevant R. (1999), Is comprehensive income superior to net income as a measure of firm performance?, Journal of Accounting and Economics, 26(1-3), pp. 43-67.
  15. Dichev I. D. (2008), On the Balance Sheet-based Model of financial Reporting, Accounting Horizons.
  16. Edwards E. O. and Bell P. W. (1961), The Theory and measurement of business income. (Berkeley, Los Angeles: University of California Press).
  17. EFRAG (2015), Getting a Better Framework – Profit or Loss versus OCI, Bulletin.
  18. Ernstberger J. (2008). The value relevance of comprehensive income under IFRS and US GAAP: empirical evidence from Germany, International Journal of Accounting, Auditing and Performance Evaluation, 5(1), pp. 1-29.
  19. Goncharov I., and Hodgson A. (2011), Measuring and reporting income in Europe, Journal of International Accounting Research, 10, pp. 27-59.
  20. Günther R. (2015), Value-Relevance of Other Comprehensive Income under IFRS. (Diss. University of St. Gallen).
  21. Hirst D. E. and Hopkins P. E. (1998), Comprehensive income reporting and analysts’ valuation judgments, Journal of Accounting Research, 36, pp. 47-75.
  22. Hirst D. E., Hopkins P. E. and Wahlen J. M. (2004), Fair values, income measurement, and bank analysts’ risk and valuation judgments, The Accounting Review, 79(2), pp. 453-472.
  23. Incollingo A., Lucchese M., and Di Carlo F. (2014), The Role of Comprehensive Income as Financial Performance Predictor: Panel Evidence From Italy, Journal of Modern Accounting and Auditing, 10(12), pp. 1139-1152.
  24. International accounting standards board. Discussion Paper DP/2013/1 (2013), A Review of the Conceptual Framework for Financial Reporting.
  25. International accounting standards board. Exposure Draft ED/2015/3 (2015), Conceptual Framework for Financial Reporting. International accounting standards board. IAS 1 (2011), Presentation of financial statements.
  26. International accounting standards board. IFRS Conceptual Framework (2018a), Conceptual Framework for Financial Reporting.
  27. International accounting standards board. IFRS Conceptual Framework – Basis for Conclusions (2018b), Conceptual Framework for Financial Reporting.
  28. International accounting standards board (2010), The Conceptual Framework for Financial Reporting.
  29. Jones D. A. and Smith K. J. (2011), Comparing the value relevance, predictive value, and persistence of other comprehensive income and special items, The Accounting Review, 86(6), pp. 2047-2073.
  30. Kanagaretnam K., Mathieu R., and Shehata M. (2009), Usefulness of comprehensive income reporting in Canada, Journal of Accounting and Public Policy, 28(4): 349-365.
  31. Linsmeier T. J. et al. (1997). An issues paper on comprehensive income, Accounting Horizons, 11(2), pp. 120. Maines L. A., and McDaniel L. S. (2000), Effects of comprehensive-income characteristics on nonprofessional investors’ judgments: The role of financial-statement presentation format, The accounting review, 75(29), pp. 179-207. Mechelli A. and Cimini R. (2014), Is comprehensive income value relevant and does location matter? A European study, Accounting in Europe, 11(1), pp. 59-87.
  32. Ohlson J. A. (19999, On transitory earnings, Review of Accounting Studies. Paton W. A., and Littleton A. C. (1940), An Introduction to Corporate Accounting Standards. (American Accounting Association).
  33. Pronobis P., and Zülch H. (2011), The predictive power of comprehensive income and its individual components under IFRS, Problems and Perspectives in Management (PPM), Forthcoming.
  34. Robinson L. E. (1991), The time has come to report comprehensive income, Accounting Horizons, 5(2), p. 107.
  35. Schaberl P., and Victoravich L. (2015), Reporting location and the value relevance of accounting information: the case of other comprehensive income, Advances in Accounting, 31, pp. 239-246.
  36. Sprouse R. T. (1966), Accounting for what-you-may-call-it, Journal of Accountancy (pre-1986) 122.000004, 45.
  37. Zimmerman A. B., and Bloom R. (2016), The matching principle revisited, Accounting Historians Journal, 43(1), pp. 79-119.

Thomas Ryttersgaard, Bridge over troubled water: Is it possible to define other comprehensive income? in "FINANCIAL REPORTING" 1/2021, pp 61-87, DOI: 10.3280/FR2021-001003