| The new accounting standards and its interpretation No. 3 modified the content and format of income statement twice in 2006 and 2009. Specifically, the income statement introduced the item of Changes in Fair Values, highlighted Loss of Asset Value, changed the disclosuring location of Investment Income and Minority Income, and introduced the item of Other Comprehensive Income. These reforms of income statement reflected the concept of standards-setting began to change from Revenue-expense View to Asset-liability View. Base on this background, We select non-financial A-share listed companies during the period 2004-2006 as sample, and do an empirical test of reform of income statement impacting on reliability and value relevance of earnings information.The new accounting standards focus more on"Principles-based", accountants have more and more professional judgement in specific accounting treatment, and the elasticity and flexibility of accounting treatment also increased, so the reliability of earnings information will be affected. We selected Discretionary Accruals which is the indicator of earnings management to measure earnings reliability. We find the Discretionary Accruals increased significantly after the implementation of new accounting standard. This indicate the implementation of new accounting standards undermined the earnings reliability.The concept of new accounting standards-setting changed from Revenue-expense View to Asset-liability View and the financial reporting objective emphasises more on decision-usefulness view, so this paper selected price model and return model to examine the earnings value-relevance. Firstly, we examine the reform of income statement impacting on earnings value-relevance overall. The finding shows that the value relevance of Core Income, Operating Income and Net Income all increased. Then, we examine the information content of five earnings items (Investment Income, Minority Income, Loss of Asset Value, Changes in Fair Values and Other Comprehensive Income) which are changed in the new income statement. Our findings indicate that: (1) The change of location of Investment Income don't increase this item's information content, indicating that Investment Income began to be recoginzed by the market when the old accounting standards implemented. (2) The change of location of Minority Income increase its value relevance. This reflects the entity theory which is a theory of consolidated statements is better than the original parent theory. (3) There is significantly negative correlation between Loss of Asset Value and stock prices/stock returns, which indicating that disclosing the Loss of Asset Value separately is practical significance. (4) The item of Changes in Fair Values and stock prices are significantly correlated, but the unexpected Changes in Fair Values can't explain cumulative abnormal stock returns. This shows that Changes in Fair Values have information content, and it's difficult to predict changes in Changes in Fair Values which have greater volatility. (5) About information content of Other Comprehensive Income, we find that Other Comprehensive Income have information content only when it is disclosed in the income statement, but it can't explain stock prices reasonably because this item is disclosed in the income statement just recently. We should further study the information content of Other Comprehensive Income.The conclusions of this paper show that the reform of income statement have a good market reaction overall. But there are some problems, we suggest that some related departments should pay attention to the earninngs management of listed companies under new accounting standards and increase publicity and guidance to help people better understand information of Other Comprehensive Income. |
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