The Research On The Information Content And Disclosure Of Comprehensive Income

Based on data of Shanghai and Shenzhen A-share listed company’s annual financial statements from the year2008to2012, this paper focuses on the presentation of comprehensive income. While collecting the related data of comprehensive income, the problem on the reporting format of the comprehensive income appears. This article classifies these issues and summarizes the main problems on presentation and disclosure of the other comprehensive income. At the same time, this paper counts and analyses the number of the companies which disclose the other comprehensive income and its component items in their financial reports with descriptive statistical methods. Then I discover that the frequency of the various components of the other comprehensive income is different, and I also find that unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments are the most commonly used item of the other comprehensive income.This paper empirically investigates the information content of comprehensive income through the price model. The result shows that comprehensive income per share(PCI) has a high information content, and more and more people pay attention to the comprehensive income information with the passage of time, so that it can play a better role in decision analysis.Thus it is necessary to introduce a new indicator——comprehensive income per share (PCI). As a measure of corporate performance, PCI can help investors to make value judgments and investment decisions.After confirming the comprehensive income’s information content, the following study focuses on the presentation format of the comprehensive income. The research begins with the two perspectives of the report location and report form. The study of report location has the same meaning with the research of the reforming of comprehensive income’s presentation published in "Interpretation of Accounting Standards No.3". The result shows that the other comprehensive income has higher information content when it is presented in income statement, compared to be presented in statement of stockholders equity. Besides, it also shows that the requirement that both the realized and unrealized gains and losses should be presented in the income statement published in "Interpretation of Accounting Standards No.3" can improve the transparency of financial reporting significantly and usefulness of accounting information. On the other side, the study of report form stresses on the presentation of the other comprehensive income components. Since it is required that the other comprehensive income components should be disclosed in the notes in China that the information can not get enough attention of investors, even be completely ignored. Thus the function of anticipating the cash flows and changes in the value is invalid. This paper makes research on the value relevance of the various items of the other comprehensive income through price model, the results shows that it can be recognized and used by investors easily when the other comprehensive income components are disclosed in the income statement.At the end of this paper, some advices are suggested to solve the problems of presentation of comprehensive income and to improve the valuation usefulness of comprehensive income. Firstly, companies are advocated to present the other comprehensive income and comprehensive income in income statement, which also known as "a single statement". Secondly, the supervision of the comprehensive income’s presentation should be strengthened, and the disclosure of the other comprehensive income in the notes should be standardized, so that the various problems on the presentation of comprehensive income can be curbed. Thirdly, the other comprehensive income components should be disclosed in the income statement. Lastly, official and non-governmental organizations should popularize the use of PCI, so that the concept of comprehensive income can be widely known.