Empirical Research On The Usefulness Of The Information In The Income Statement

The income statement reflects the operating results of the enterprise during a certain accounting period.The purpose of preparing the income statement by the enterprise is to help reflect the actual amount of income and expenses,as well as the amount and structure of profits and losses that should be included in the profits for the current period,which will help the users of statements to make use of the information to analysis,evaluate,forecast and make decision.With the internationalization of accounting standards,scholars mainly study the value relevance of items measured by fair value in the profit statement after the introduction of fair value accounting.The forecasting research mainly focuses on the comparison of net income and comprehensive income.Few studies show the difference between persistent surpluses and aggregate earnings in stock pricing and the future performance forecasting,from a continuing perspective of earnings.This article selects the Shanghai and Shenzhen A-share listed companies from 2010 to 2016 as a sample,decomposes the total surplus in the current income statement according to the persistence,and verifies whether the items in the reconstructed income statement are superior to those in the current income statement in pricing function and predicting of the future profit and cash flow through the empirical test.The empirical results show that the highly persistent surplus items have a higher value relevance with price and a stronger ability in forecasting the net cash flow of future operating activities than the lower ones,and also prove that the value of the surplus items in the income statement are higher than the net assets item in the balance sheet in price relevance.In the study of forecasting future net profit,it is showed that the net profit of the lag period has the stronger predictive ability than the persistent surplus items and the total comprehensive income.The research in this paper reveals the importance of the persistent surplus should be presented in the income statement,including the gross profit and operating profit.The financial expense,as information related to the financing activities of the enterprise,should be listed separately from the value-added operating activities of the entity,which can improve the relationship with the "net cash flow from operating activities" in cash flow statement.The research in this paper provides empirical evidence for the international convergence of Chinese income statement,as well as providing corresponding policy suggestions for improving the income statement.At the same time,it points out that for different information needs,users of financial reporting information should pay attention to different projects instead of functionally locked-in,which provides guidance and reference for investors and creditors to make decisions,and it standardizes the investment behavior in the capital market.