Is Comprehensive Income Useful?
Journal of Contemporary Accounting and Economics, Vol. 2, No. 1, June 2006
32 Pages Posted: 15 Jun 2011
Date Written: June 2006
With the International Accounting Standards Board (IASB) now considering the question, we examine 16 different definitions of income across three applications: information content, predictive ability and executive compensation contracting. Our results reveal that comprehensive income defined by FASB Statement 130 (NI130) dominates both traditional net income (NI) and fully comprehensive income (NIbroad) in explaining equity returns, but that NI dominates NI130 and NIbroad in explaining executive compensation. These findings are strikingly consistent with prior lobbying positions. In predictive ability, no definition clearly dominates. When income components are considered, NIbroad dominates in all three applications, thus lending support to the disclosure of comprehensive income components.
Keywords: comprehensive income, information content, executive compensation predictive ability
JEL Classification: M41, G12, G31
Suggested Citation: Suggested Citation