The Decision Usefulness of Comprehensive Income Reporting: Evidence from Canada

55 Pages Posted: 11 Jan 2013 Last revised: 21 Aug 2013

See all articles by Harjinder Deol

Harjinder Deol

Mount Royal University

Jamal A. Nazari

Beedie School of Business, Simon Fraser University

Date Written: January 10, 2013

Abstract

In this study, we empirically investigate the decision usefulness of mandatory reporting of comprehensive income in Canada. Drawing upon Ohlson’s (1999) discussion of the attributes of transitory earnings, we used a sample of 324 firms listed on the Toronto Stock Exchange for the study period to test whether OCI and its individual components (namely, unrealized gains and losses on cash flow hedges, unrealized gains and losses on available for sale investments, and foreign currency translation adjustment on foreign subsidiaries) possess forecasting relevance, predictability and value relevance.

We found that aggregate OCI and some of its individual components are relevant in forecasting future abnormal earnings. We also found that OCI is predictable, and incrementally value relevant to net income. The results of our study suggest that Ohlson’s description of transitory earnings might not apply to OCI, and that the reporting of comprehensive income in Canada did enhance the decision usefulness of accounting numbers.

Keywords: Comprehensive Income

JEL Classification: M40

Suggested Citation

Deol, Harjinder and Nazari, Jamal A., The Decision Usefulness of Comprehensive Income Reporting: Evidence from Canada (January 10, 2013). CAAA Annual Conference 2013. Available at SSRN: https://ssrn.com/abstract=2198742 or http://dx.doi.org/10.2139/ssrn.2198742

Harjinder Deol (Contact Author)

Mount Royal University ( email )

4825 Richard Road SW
Calgary, Alberta T3E 6K6
Canada
403-440-8647 (Phone)

Jamal A. Nazari

Beedie School of Business, Simon Fraser University ( email )

Beedie School of Business Simon Fraser University
8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
778.782.4604 (Phone)

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