Reporting Location and the Value Relevance of Accounting Information: The Case of Other Comprehensive Income

Abstract

This paper examines the influence of reporting location on the value relevance of other comprehensive income (OCI). Accounting Standards Update (ASU) 2011-05 “Presentation of Comprehensive Income” requires firms to report OCI in a performance statement (i.e., either below net income in a single statement of comprehensive income or in a second statement of comprehensive income that begins with net income). ASU 2011-05 eliminated the option of reporting OCI in the statement of equity, based on the argument that performance reporting would improve the transparency of OCI in the financial statements. We find mixed evidence that the value relevance of OCI differs across management's choices of OCI reporting location prior to the implementation of ASU 2011-05. However, we do find a decline in the value relevance of OCI for firms that were required to change the reporting location of OCI from the statement of equity to a performance statement in response to ASU 2011-05. This result holds after we include a control group consisting of firms that did not change the reporting location of OCI. Overall, our findings suggest that the value relevance of OCI is determined by whether its reporting location is consistent with the firm's reporting history.

Keywords: value-relevance, other comprehensive income, performance reporting, reporting location