Enhanced Disclosure of Other Comprehensive Income and Increased Usefulness of Net Income: The Implications of Accounting Standards Update 2011-05

18 Pages Posted: 19 Jul 2017 Last revised: 11 Apr 2021

See all articles by Linna Shi

Linna Shi

University of Cincinnati - Lindner College of Business

Ping Wang

Pace University - Lubin School of Business

Nan Zhou

University of Cincinnati - Lindner College of Business

Date Written: August 7, 2017

Abstract

Accounting Standards Update (ASU) 2011-05 eliminates the option to present other comprehensive income (OCI) in the statement of changes in stockholders’ equity. This study empirically investigates whether this mandatory change of OCI presentation format achieves FASB’s stated objective of improving the transparency of financial reporting. First, ASU 2011-05 is found to greatly reduce the continuity of OCI from one period to the next. As OCI items are transitory in nature, the increased OCI volatility makes firms’ inherent risk more transparent to investors. Second, ASU 2011-05 is found to significantly increase the ability of net income to influence stock prices. As OCI and net income are intertwined, the more salient presentation of OCI enables investors to better interpret earnings. Supporting FASB’s position that OCI items need to be more prominently displayed, these findings suggest that the new standard improves transparency and usefulness of the reported OCI information.

Keywords: Other comprehensive income, Presentation format, ASU 2011-05

JEL Classification: M41, M48

Suggested Citation

Shi, Linna and Wang, Ping and Zhou, Nan, Enhanced Disclosure of Other Comprehensive Income and Increased Usefulness of Net Income: The Implications of Accounting Standards Update 2011-05 (August 7, 2017). Research in Accounting Regulation, October 2017, 29 (2): 139-144. , Pace University Accounting Research Paper No. 2017/03, Available at SSRN: https://ssrn.com/abstract=2998040 or http://dx.doi.org/10.2139/ssrn.2998040

Linna Shi (Contact Author)

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States
(513) 556-2097 (Phone)

Ping Wang

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Nan Zhou

University of Cincinnati - Lindner College of Business ( email )

P.O. Box 210211
Cincinnati, OH 45221-0211
United States

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