Comprehensive income disclosure (the case of US companies)

The purpose of this paper is to examine alternative reporting formats of comprehensive income (CI) information and measures the extent to which losses are being accumulated in other comprehensive income (OCI) in the specific context of two major FASB updates: Summary of Financial Accounting Standard (SFAS) No. 130 and Accounting Standard Update (ASU) 2011-05. Design/methodology/approach: This paper investigates alternative reporting formats of CI information and its effect on Earnings Per Share (EPS) of 100 top US firms over the 1997-1999 period. The pattern of Other Comprehensive Income (OCI) is then examined using a sub-sample of ten companies with 31 December year ends over the 1995-2014 period. Findings: The results indicate that several firms show OCI items as part of shareholders' equity. On average, the difference between CI and net income is significant for the majority of firms, fluctuating by up to 15% (in absolute terms) over three-years. The negative effect on EPS is significant. For sub-sample firms, OCI is predominantly negative (i.e., is reported as a loss). Research limitations/implications: The effect of the above findings is that reported earnings generally provide an overly optimistic picture of book values. Conservative book values are shown to be a more sufficient statistic for returns than earnings for investors.