Effects of comprehensive income presentation format on non-professional investors' judgement

Abstract

This study examines effects of reporting comprehensive-income information in three different formats on non-professional investors’ judgements of corporate performance. Comprehensive income is the change in equity of a business enterprise arising from non-owner sources. In recent years, accounting bodies such as the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been concerned with the presentation of comprehensive income in financial reporting. In an experiment, we investigate specifically the effects of presenting comprehensive-income information in a single performance statement of comprehensive income and the effects of including a profit-before-tax subtotal in the statement of comprehensive income on non-professional investors’ performance judgements. We look at four dimensions of performance judgements: management’s effectiveness at managing PPE, investment risk, forecasted financial performance and share price. We provide evidence that the placement of comprehensive income in a single performance statement affects only non-professional investors’ judgements of management’s effectiveness at managing PPE and investment risk while the presence of a profit-before-tax subtotal does not matter significantly.