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Research in Accounting Regulation 0 0 0 (2017) 1–6

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Research in Accounting Regulation

journal homepage: www.elsevier.com/locate/racreg

Research report

Enhanced disclosure of other comprehensive income and increased

usefulness of net income: The implications of Accounting Standards
Update 2011–05
Linna Shi a,∗, Ping Wang b, Nan Zhou c
a
University of Cincinnati, USA
b
Pace University, USA
c
State University of New York at Binghamton, USA

a r t i c l e i n f o a b s t r a c t

Article history: Accounting Standards Update (ASU) 2011–05 eliminates the option to present other comprehensive in-
Available online xxx come (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
Keywords:
Other comprehensive income the transparency of financial reporting. First, ASU 2011–05 is found to greatly reduce the continuity of
Presentation format OCI from one period to the next. As OCI items are transitory in nature, the increased OCI volatility makes
ASU 2011–05 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.
© 2017 Elsevier Ltd. All rights reserved.

1. Introduction
Comprehensive income, the change of stockholders’ equity from
non-owner sources in a given period, consists of net income and
other comprehensive income (OCI).1 How to present comprehen-
sive income has been at the center of regulatory attention for the
past two decades. In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) 130 Reporting Comprehensive Income, which is now part of
Accounting Standards Codification (ASC) Topic 220 Comprehensive
Income. Consistent with the suggestion by the Association for In-
vestment Management and Research (AIMR, 1993) that a clear dis-
play of OCI components in a performance statement would en-
hance the transparency of financial reporting, the exposure draft
of SFAS 130 initially required that OCI and its components be pre-
sented in two performance-based alternatives, either in a single
continuous statement of income or in a separate statement of com-
prehensive income (FASB, 1996). Many respondents, mostly finan-
∗
Corresponding author.
E-mail addresses: shiln@ucmail.uc.edu (L. Shi), pwang@pace.edu (P. Wang),
nzhou@binghamton.edu (N. Zhou).
1
OCI includes net unrealized holding gains and losses on some securities, gains
and losses from amendments to postretirement benefit plans, deferred gains and
losses on derivatives, and adjustments from foreign currency translation.
cial statement preparers, believed that the location of OCI dis-
closure could influence investors’ judgments (Yen, Hirst, & Hop-
kins, 2007). However, about 60% of the comment letters sent to
the FASB reacted negatively to the proposal, stating that investors
would be unable to determine which measure, net income or com-
prehensive income, was the appropriate one for investment deci-
sions (Du, McEnroe, & Stevens, 2016; FASB, 1997). Relenting to this
pressure, the FASB in the final version of SFAS 130 allows a third,
non-performance-based option, which is to present OCI in the rela-
tively obscure statement of changes in stockholders’ equity (Jordan
& Clark, 2014).2
The non-performance-based option has become the prevalent
format to disclose OCI since the implementation of SFAS 130, be-
cause managers believe that the greater volatility of firm perfor-
mance under the performance-based option could hurt the firm’s
stock price and thus jeopardize their own careers (Bamber, Jiang,
Petroni, & Wang, 2010; Graham, Harvey, & Rajgopal, 2005). In a
random sample of 100 NYSE firms, 89 reported OCI in a state-
ment of changes in stockholders’ equity, two in a continuous
statement with net income, and nine in a separate statement of
2
On the contrary, IAS 1 Presentation of Financial Statements permits an entity to
present OCI either in a single statement of comprehensive income or in two sepa-
rate statements of net income and other comprehensive income (International Ac-
counting Standards Board (IASB), 2007).

https://doi.org/10.1016/j.racreg.2017.09.005
1052-0457/© 2017 Elsevier Ltd. All rights reserved.

Please cite this article as: L. Shi et al., Enhanced disclosure of other comprehensive income and increased useful-
ness of net income: The implications of Accounting Standards Update 2011–05, Research in Accounting Regulation (2017),
https://doi.org/10.1016/j.racreg.2017.09.005
JID: RACREG
ARTICLE IN PRESS
2 L. Shi et al. / Research in Accounting Regulation 000 (2017) 1–6
comprehensive income (Pandit & Philips, 2004). Partly because of
the widespread avoidance of presenting OCI in performance-based
reports, the FASB in June 2011 issued Accounting Standards Up-
date (ASU) 2011–05 Comprehensive Income (Topic 220) Presentation
of Comprehensive Income, which eliminated the option of present-
ing OCI in the statement of changes in stockholders’ equity and
limits companies to the choice of either the income statement
or the statement of comprehensive income (Eaton, Easterday, &
Rhodes, 2013).3
Does the more prominent display of OCI items help achieve ASU
2011–05’s intended objective of improving the comparability, con-
sistency, and transparency of financial reporting (FASB, 2011)? Dif-
ferent theories exist as to whether the presentation format matters
for the transparency and valuation of accounting information. If in-
vestors are rational in an efficient market, then the presentation
format should not matter, as public information disclosed in any
format is fully incorporated into the stock price (Eaton et al., 2013).
In a departure from the efficient market hypothesis, Hirshleifer and
Teoh (2003) assume that investors have limited attention and pro-
cessing power when modeling firms’ choices between alternative
means of presenting information. Due to limited attention, in-
vestors can process and absorb salient information more easily
than less salient information implicit in the public domain. They
further conclude that disclosing equivalent information in different
formats can have different effects on investors’ perceptions due to
investors’ limited attention. Drawing on this limited attention the-
ory (Hirshleifer & Teoh, 2003), the current study hypothesizes that
the new presentation requirement in ASU 2011–05 makes financial
statements more transparent and thus more useful to investors.
The sample consists of 1663 firm-year observations pertaining
to S&P 500 firms from 2010 to 2013, two years before and two
years after the ASU 2011–05 implementation. Two key findings are
as follows. First, ASU 2011–05 reduces the continuity of net income
from one year to the next by 7% and accelerates the reversal of
OCI by 60%.4 Consistent with the notion that OCI items are transi-
tory in nature (Bamber et al., 2010; Barker, 2004; Linsmeier et al.,
1997), the increased OCI volatility makes firms’ inherent risk more
transparent to investors (Huang, Lin, & Raghunandan, 2016). Sec-
ond, ASU 2011–05 significantly increases the ability of net income
to influence stock prices. Given that OCI and net income are in-
tertwined, the more salient presentation of OCI enables investors
to better interpret earnings.5 After ASU 2011–05, more than 80%
of S&P 500 firms choose to report OCI in a separate statement of
comprehensive income instead of a continuous income statement
(Kim, 2016). This calls for further examination of the pros and cons
of these two types of performance reports. The supplemental anal-
ysis for the post ASU 2011–05 period indicates that the choice of
reporting OCI in either a continuous income statement or a state-
ment of comprehensive income does not have any differential in-
fluence on the continuity of earnings from one period to the next
or the ability of earnings to influence stock prices.
3
Effective for fiscal years beginning after December 15, 2011, ASU 2011–05 fo-
cuses on the change of the OCI presentation format. Other issues, such as the calcu-
lation of OCI items, the reporting about the reclassification from OCI to net income,
and the option to report OCI either before tax or net of tax, are not changed. The
FASB made the change to increase the prominence of OCI information, which may
improve investors’ recognition and understanding of OCI. In addition, the change
also makes U.S. GAAP and international financial reporting standards (IFRS) more
convergent in terms of OCI presentation (FASB, 2011).
4
Similarly, Jones and Smith (2011) find that OCI gains and losses exhibit rever-
sal, which may be due to the reclassification of gains and losses out of the balance
sheet account Accumulated Other Comprehensive Income (AOCI) and into net in-
come. They illustrate this scenario with an example in footnote 11 on page 2052.
5 experiment research design, where the treatment effect is ASU 2011-05 issued by
Note that OCI itself does not contribute to a firm’s value, which is consistent
with the evidence that OCI adds little information to net income in explaining stock
prices (Dhaliwal, Subramanyam, & Trezevant, 1999; O’Hanlon & Pope, 1999; Cahan,
Courtenay, Gronewaller, & Upton, 20 0 0).
Please cite this article as: L. Shi et al., Enhanced disclosure
ness of net income: The implications of Accounting Standards Update 2011–05, Research in Accounting Regulation (2017),
https://doi.org/10.1016/j.racreg.2017.09.005
[m5G;November 8, 2017;9:1]
This paper has policy implications for standard setters regarding
the OCI presentation. When presented in a performance statement,
the OCI information should be more helpful to financial statement
users in their assessment of firms’ business activities and future
cash flows (FASB, 2011). Supporting FASB’s position, the findings
suggest that ASU 2011–05 improves transparency and usefulness
of the reported OCI information. Allowing a separate statement
of comprehensive income, the FASB (2011, 45) “reasoned that this
two-statement approach achieves the same objectives as a single
statement because the statements would be consecutive and would
end with a total for comprehensive income, adequately increas-
ing the prominence of other comprehensive income.” Evidence that
OCI presented in a continuous income statement has the same ef-
fects on earnings continuity and value implications as OCI in a
statement of comprehensive income reinforces FASB’s notion that
the key difference is between a performance report and a non-
performance report, rather than between two different types of
performance reports.
This paper also contributes to two streams of the account-
ing literature. First, the study adds to the literature on finan-
cial statement presentation by documenting that the more promi-
nent display of OCI in a performance report improves the trans-
parency of financial reporting. Previous studies, only focusing on
items within the income statement, find that the closer the line
item to the top line in the income statement, the greater its ef-
fect on stock prices or future earnings (Bartov & Mohanram, 2014;
Bradshaw & Sloan, 2002; Fairfield, Sweeney, & Yohn, 1996; Lipe,
1986; Ohlson & Penman, 1992; Strong & Walker, 1993). Second,
the study adds to the OCI literature that has yielded mixed ev-
idence so far. While experimental studies find that OCI informa-
tion reported in the income statement can help investors extract
useful information (Hirst & Hopkins, 1998; Maines & McDaniel,
20 0 0), archival studies show that investors only react to OCI infor-
mation reported in the statement of changes in stockholders’ eq-
uity (Chambers, Linsmeier, Shakespeare, & Sougiannis, 2007; Lin,
Martinez, Wang, & Yang, 2017). Deviating from the assumption in
Chambers et al. (2007) and Lin et al. (2017) that the OCI presen-
tation format affects only OCI, this paper conjectures that the OCI
presentation format can also have an effect on net income. Specif-
ically, it is uncovered that displaying OCI in a performance report
enhances the ability of net income, rather than OCI, to influence
stock prices. While Collins, Maydew, and Weiss (1997) document
the decline of earnings’ effect on stock prices in past decades, the
current study suggests that improving the salience of OCI would
mitigate this trend by improving the ability of earnings to influ-
ence stock prices. These findings, new to the OCI literature, provide
evidence to the FASB that the more salient OCI presentation under
ASU 2011–05 improves the usefulness of earnings.
The rest of the paper is structured as follows. The next section
discusses sample selection and descriptive statistics. The third sec-
tion presents empirical findings. The last section concludes.
2. Sample selection and descriptive statistics
Table 1 describes the sample selection. Starting with the Com-
pustat S&P 500 Index constituents in 2010, the initial sample tracks
these 500 firms over from 2010 to 2013, two years before and two
years after ASU 2011–05.6 The OCI presentation format informa-
tion is hand-collected from firms’ 10-K filings. The sample loses 36
observations due to missing 10-K filings7 ; 38 observations due to
6
This sample construction is driven by the adoption of a pre-post quasi-
the FASB.
7
One or multiple years of 10-K filings are missing for 19 firms, which translates
to 36 missing firm-year observations. Specifically, the 10-K filings are missing for 17
of other comprehensive income and increased useful-
JID: RACREG
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L. Shi et al. / Research in Accounting Regulation 000 (2017) 1–6
Table 1
Sample selection.
S&P 500 firms in 2010 tracked for a four year period from 2010 to 2013 20 0 0
Less:
Firm-years with missing 10-K filings (36)
Firm-years with missing OCI in the 10-K filings (38)
Firm-years with missing beginning market value or total assets (190)
Firm-years with missing stock returns for the current year (28)
Firm-years with missing comprehensive income for the next year (35)
Final sample 1663
This table describes the sample selection process.
missing OCI information in a financial statement8 ; and 253 obser-
vations due to missing variables in Compustat and CRSP. The final
sample consists of 1663 firm-year observations. Table 2 reports the
distribution based on firms’ OCI presentation formats. Before ASU
2011–05, the percentage of firms reporting OCI in the statement of
changes in stockholders’ equity (SCSE hereafter) is 74.58% (63.51%)
in 2010 (2011). After ASU 2011–05, this percentage drops to 9.72%
(0.76%) in 2012 (2013). Out of 396 firms in 2013, two years after
the adoption of ASU 2011–05, 372 firms (93.94%) choose the state-
ment of comprehensive income (SCI hereafter) to report OCI, 21
firms (5.30%) adopt the continuous statement of income (IS here-
after), and three firms (0.76%) continue to use the disallowed SCSE.
Table 3 tabulates the descriptive statistics for regression variables.9
Comprehensive income (CI), net income (NI) and OCI values are
hand-collected from sample firms’ 10-K filings.10 The mean CI, NI
and OCI, divided by average total assets (beginning market value),
are 7.49% (6.85%), 7.46% (6.86%), and −0.11% (−0.03%), respectively.
The average annual stock return is 19.13% for the sample period
from 2010 to 2013.
3. Empirical findings
3.1. Continuity of earnings from one period to the next
Table 4 presents findings on whether ASU 2011–05 reduces the
continuity of comprehensive income by regressing next year’s to-
tal comprehensive income (CIt+1A ) on either current year’s com-
A
prehensive income (CIt ) or its two components.11 For the sample
period, DY is an indicator variable equal to one if a firm’s fiscal
year ends in 2012 and 2013, and zero in 2010 and 2011. DIS&SCI
is an indicator variable equal to one if a firm reports OCI in IS
or SCI, and zero if a firm presents OCI in SCSE. Panel A focuses
on total comprehensive income. The first column provides a base-
line model for the continuity of comprehensive income. The co-
efficient on CItA indicates that 78% of total comprehensive income
continues from the current period to the next over the entire sam-
ple period. The second column examines whether earnings con-
tinuity changes after ASU 2011–05. The percentage drops signifi-
cantly from 85% (coefficient on CItA ) before ASU 2011–05 to 72%
firms in one or multiple years between 2010 and 2012, but are available in 2013.
The 10-K filings are missing for one firm over the entire sample period from 2010 to
2013. One firm, Life Technologies Corp., has a 10-K filing in 2010, 2011 and 2012, but
not in 2013. Since survivorship claims only one missing firm-year observation (Life
Technologies Corp. in 2013), the results in this paper are unlikely to be influenced
by the survivorship bias.
8
The OCI information either cannot be found in the 10-K filings or is disclosed
in a footnote rather than in the main body of a financial statement.
9
For all regression variables, top 1% extreme values on the left (right) tail are
replaced by the value at the first (99th ) percentile, so as to mitigate the influence
of outliers in regressions.
10
There could be a discrepancy between CI and NI from 10-K filings and those
from Compustat, due to the fact that Compustat attributes CI and NI sometimes to
controlling holders or sometimes to the entire company. This paper uses CI, NI and
OCI values for the entire company, without considering non-controlling (minority)
shareholders.
11
The superscript A denotes that the variable is scaled by average total assets.
Please cite this article as: L. Shi et al., Enhanced disclosure
ness of net income: The implications of Accounting Standards Update 2011–05, Research in Accounting Regulation (2017),
https://doi.org/10.1016/j.racreg.2017.09.005
[m5G;November 8, 2017;9:1]
3
(coefficient on C ItA + that on C ItA ∗ DY ) after ASU 2011–05. The third
column compares earnings continuity when firms report OCI in a
performance statement (i.e., IS or SCI) versus a non-performance
statement (i.e., SCSE). The percentage is lowered from 87% (coef-
ficient on CItA ) with OCI presented in SCSE to 72% (coefficient on
CItA + that on CItA ∗ DIS&SCI ) with OCI in either IS or SCI.
Panel B decomposes CItA into net income (NItA ) and other com-
prehensive income (OCItA ). The first column shows that 87% (co-
efficient on NItA ) of current net income continues to the next pe-
riod, whereas 58% (the coefficient on OCItA ) of current OCI expe-
riences a reversal in the next period. Jones and Smith (2011) find
that OCI gains and losses exhibit similar reversal, which is likely
caused by the reclassification of gains and losses out of AOCI and
into net income. The second column shows that ASU 2011–05 re-
duces the continuity of net income by 7% (coefficient on NItA ∗ DY )
and increase the reversal of OCI by 60% (coefficient on OCItA ∗ DY ).
Similarly, the third column documents that the continuity of net
income falls by 10% (coefficient on NItA ∗ DIS&SCI ) and the reversal
of OCI increases by 72% (coefficient on OCItA ∗ DIS&SCI ) when OCI is
presented in a performance statement. Consistent with the notion
that OCI items are transitory in nature (Bamber et al., 2010; Barker,
2004; Linsmeier et al., 1997), the increased OCI volatility post ASU
2011–05 makes firms’ inherent risk more transparent to investors
(Huang et al., 2016).
3.2. Ability to influence stock prices
Table 5 provides evidence on whether ASU 2011–05 signifi-
cantly increases the ability of earnings to influence stock prices
by regressing current year’s stock returns (RETt ) on current year’s
comprehensive income (CItMV ) or its two components.12 RETt is the
12-month raw cumulative stock returns starting from the fifth
month of the last fiscal year-end to the fourth month after the cur-
rent fiscal year-end. DY and DIS&SCI are as defined in Table 4. Panel
A focuses on total comprehensive income. The first column pro-
vides a baseline model regarding the effect of total comprehensive
income on stock returns. The significant coefficient on CItMV shows
that stock returns are contemporaneously associated with total
comprehensive income. The second column finds that the effect of
total comprehensive income on investors’ valuation increases from
0.35 (coefficient on CItMV ) before ASU 2011–05 to 0.88 (coefficient
on CItMV +that on CItMV ∗ DY ) after ASU 2011–05. The third column
investigates whether the value implications of comprehensive in-
come are different when OCI is presented in IS or SCI as opposed
to SCSE. The effect of total comprehensive income on stock returns
is 0.33 (coefficient on CItMV ) when OCI is presented in SCSE, versus
0.76 when OCI is presented in IS or SCI (coefficient on CItMV + that
on CItMV ∗ DIS&SCI ). These results indicate that investors react to to-
tal comprehensive income more strongly when OCI is reported in
a performance report post ASU 2011–05.
Panel B decomposes CItMV into net income (NItMV ) and other
comprehensive income (OCItMV ). The first column shows that the
pricing on OCI is almost one to one (coefficient on OCItMV = 1.04),
while the pricing on net income is lower than one (coefficient on
NItMV = 0.70). The second column reports that ASU 2011–05 sub-
stantially increases the ability of net income to affect stock returns
(significant coefficient on NItMV ∗ DY = 0.86) but does not change
the ability of OCI to influence stock returns (insignificant coeffi-
cient on OCItMV ∗ DY ). The third column finds that the effect of net
income on stock returns is higher when OCI is presented in either
IS or SCI (significant coefficient on NItMV ∗ DIS&SCI = 0.74), whereas
12
The superscript MV denotes that the variable is scaled by beginning mar-
ket value, which is equal to the stock price at the end of the last fiscal period
end (PRCC_F) multiplied by the total number of shares outstanding (CSHO) (e.g.,
Chambers et al., 2007).
of other comprehensive income and increased useful-
JID: RACREG
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4 L. Shi et al. / Research in Accounting Regulation 000 (2017) 1–6

Table 2
Sample distribution.

Year OCI presentation formats

Statement of changes in stockholders’ equity Income statement Statement of comprehensive income Total
(SCSE) (IS) (SCI)

2010 308 11 94 413

74.58% 2.66% 22.76%
2011 268 17 137 422
63.51% 4.03% 32.46%
2012 42 28 362 432
9.72% 6.48% 83.80%
2013 3 21 372 396
0.76% 5.30% 93.94%
Total 621 77 965 1663
37.34% 4.63% 58.03%

This table shows the annual distribution pertaining to different presentation formats of other comprehensive income (OCI).
The OCI presentation format information is hand-collected by reading sample firms’ 10-K filings from the EDGAR Data by the
Securities and Exchange Commission.
Table 3 Table 4
Descriptive statistics. Earnings continuity for different OCI presentation formats.

Variable Mean Q1 Median Q3 Std Dev N Panel A: Total comprehensive income (Dependent variable = CIt+1
A
)

A
CIt+1 0.0773 0.0724 0.0286 0.0632 0.1118 1663 Variable Model 1.1 Model 1.2 Model 1.3
CItA 0.0749 0.0633 0.0321 0.0639 0.1074 1663 CItA 0.78 0.85 0.87
NItA 0.0746 0.0610 0.0322 0.0644 0.1072 1663
OCItA −0.0011 0.0148 −0.0056 -0.0 0 01 0.0033 1663 (0.00) (0.00) (0.00)
RETt 0.1913 0.2604 0.0216 0.1782 0.3329 1663 CItA ∗ DY −0.13
CItMV 0.0685 0.0561 0.0453 0.0660 0.0873 1663 (0.00)
NItMV 0.0686 0.0448 0.0499 0.0676 0.0858 1663 DY 0.01
OCItMV −0.0 0 03 0.0254 −0.0053 −0.0 0 01 0.0035 1663 (0.06)
DY 0.4979 0.5001 0.0 0 0 0 0.0 0 0 0 1.0 0 0 0 1663 CItA ∗ DIS&SCI −0.15
DIS&SCI 0.6266 0.4839 0.0 0 0 0 1.0 0 0 0 1.0 0 0 0 1663 (0.00)
DIS 0.0463 0.2102 0.0 0 0 0 0.0 0 0 0 0.0 0 0 0 783 DIS&SCI 0.00
(0.38)
This table presents the descriptive statistics for regression variables. CI, NI and Intercept 0.02 0.01 0.02
OCI are, respectively, total comprehensive income, net income and other com- (0.00) (0.00) (0.00)
prehensive income. The superscript A (MV ) denotes that the variable is scaled by Number of Obs. 1663 1663 1663
average total assets (beginning market value). The subscript t (t+1 ) denotes that Adjusted R2 46.34% 46.64% 46.98%
the variable is in the current year (the next year). RETt is the 12-month raw cu- F-value 1436.33 485.17 491.93
mulative stock returns starting from the fifth month of the last fiscal year-end Prob > F 0.00 0.00 0.00
to the fourth month after the current fiscal year-end. DY is an indicator variable
Panel B: Decomposition of comprehensive income (Dependent variable = CIt+1
A
)
equal to one if a firm’s fiscal period ends in 2012 and 2013, and zero if it ends in
2010 and 2011. DIS&SCI is an indicator variable equal to one if a firm reports OCI Variable Model 2.1 Model 2.2 Model 2.3
in either the income statement (IS) or the statement of comprehensive income
(SCI), and zero if a firm presents OCI in the statement of changes in stockhold- NItA 0.87 0.91 0.93
ers’ equity (SCSE). For the subsample of post ASU 2011–05 observations, DIS is an (0.00) (0.00) (0.00)
indicator variable equal to one if a firm presents OCI in the income statement, OCItA −0.58 −0.30 −0.14
and zero if a firm presents OCI in the statement of comprehensive income. (0.00) (0.01) (0.28)
NItA ∗ DY −0.07
(0.06)
OCItA ∗ DY −0.60
the effect of OCI on stock returns is not affected by the OCI pre-
(0.00)
sentation format (insignificant coefficient on OCItMV ∗ DIS&SCI ). Prior DY 0.01
studies (e.g., Chambers et al., 2007; Lin et al., 2017) find that the (0.01)
value implications of OCI are not affected by the OCI presenta- NItA ∗ DIS&SCI −0.10
tion format and thus question whether ASU 2011–05 improves in- (0.02)
OCItA ∗ DIS&SCI −0.72
vestors’ understanding of earnings information. Unlike these stud-
(0.00)
ies, which implicitly assume that the effect of net income on stock DIS&SCI 0.01
returns is independent of the OCI reporting location, this paper (0.12)
provides evidence that the more salient OCI under ASU 2011–05 Intercept 0.01 0.01 0.01
(0.00) (0.01) (0.01)
helps investors better understand net income and thus increases
net income’s ability to influence stock prices. Number of Obs. 1663 1663 1663
Adjusted R2 54.64% 55.17% 55.24%
F-value 1002.18 410.12 411.16
3.3. Further analysis Prob > F 0.00 0.00 0.00

ASU 2011–05 allows two types of performance reports (i.e., IS
and SCI). Since Table 2 reports that over 90% of the sample firms
favor SCI, Table 6 further studies whether SCI and IS have dif-
ferent effects on earnings continuity and value implications. The
analysis is restricted to a subsample of 783 observations that re-
port OCI in a performance report for the post ASU 2011–05 pe-
riod of 2012 and 2013. DIS is a dummy variable equal to one if
a firm discloses its OCI information in IS, and zero if OCI is re-
ported in SCI. All other variables are as defined in Tables 4 and 5.
This table presents the regression results on the continuity of comprehensive in-
come (CI), net income (NI), and other comprehensive income (OCI), based on firms’
OCI presentation formats. The superscript A denotes that the variable is scaled by
average total assets. The subscript t (t+1 ) denotes that the variable is in the current
year (the next year). DY is an indicator variable equal to one if a firm’s fiscal pe-
riod ends in 2012 and 2013, and zero if in 2010 and 2011. DIS&SCI is an indicator
variable equal to one if a firm reports OCI in either the income statement (IS) or
the statement of comprehensive income (SCI), and zero if a firm presents OCI in
the statement of changes in stockholders’ equity (SCSE). For each explanatory vari-
able, the coefficient estimate is reported on the top, and the p-value based on a
two-tailed t-test is reported in parentheses at the bottom.

Please cite this article as: L. Shi et al., Enhanced disclosure of other comprehensive income and increased useful-
ness of net income: The implications of Accounting Standards Update 2011–05, Research in Accounting Regulation (2017),
https://doi.org/10.1016/j.racreg.2017.09.005
JID: RACREG
ARTICLE IN PRESS [m5G;November 8, 2017;9:1]

L. Shi et al. / Research in Accounting Regulation 000 (2017) 1–6 5

Table 5 Table 6
Value implications for different OCI presentation formats. OCI presentation formats under ASU 2011–05: Income statement versus statement
of comprehensive income.
Panel A: Total comprehensive income (Dependent variable = RETt )
Earnings continuity Value implications
Variable Model 3.1 Model 3.2 Model 3.3
Dependent variable = CIt+1
A
Dependent variable = RETt
CItMV 0.63 0.35 0.33
Variable Model 1.4 Model 2.4 Variable Model 3.4 Model 4.4
(0.00) (0.03) (0.10)
CItMV ∗ DY 0.53 CItA 0.70 CItMV 0.79
(0.02) (0.00) (0.00)
DY 0.05 NItA 0.84 NItMV 1.10
(0.01) (0.00) (0.00)
CItMV ∗ DIS&SCI 0.43 OCItA −0.93 OCItMV 0.61
(0.08) (0.00) (0.07)
DIS&SCI 0.01 CItA ∗ DIS 0.07 CItMV ∗ DIS 1.03
(0.70) (0.50) (0.10)
Intercept 0.15 0.12 0.15 NItA ∗ DIS 0.03 NItMV ∗ DIS 1.15
(0.00) (0.00) (0.00) (0.72) (0.15)
OCItA ∗ DIS −0.51 OCItMV ∗ DIS 0.36
Number of Obs. 1663 1663 1663
(0.29) (0.81)
Adjusted R2 1.76% 4.73% 2.29%
DIS 0.01 0.00 DIS −0.07 −0.07
F-value 30.78 28.53 14.00
(0.68) (0.73) (0.16) (0.21)
Prob > F 0.00 0.00 0.00
Intercept 0.02 0.02 Intercept 0.19 0.16
Panel B: Decomposition of comprehensive income (Dependent variable = RETt ) (0.00) (0.00) (0.00) (0.00)
Number of Obs. 783 783 Number of Obs. 783 783
Variable Model 4.1 Model 4.2 Model 4.3 2 2
Adjusted R 40.77% 53.47% Adjusted R 3.98% 5.07%
NItMV 0.70 0.31 0.23 F-value 180.39 180.72 Number of Obs. 11.81 9.35
(0.00) (0.12) (0.35) Prob > F 0.00 0.00 Prob > F 0.00 0.00
OCItMV 1.04 1.01 1.40
This table presents the regression results on the earnings continuity and value im-
(0.00) (0.01) (0.00)
plications of comprehensive income (CI), net income (NI), and other comprehensive
NItMV ∗ DY 0.86
income (OCI), depending on a firm’s choice of presenting OCI either in an income
(0.00)
statement (IS) or in a statement of comprehensive income (SCI). This analysis is
OCI/MVt ∗ DY −0.27
restricted to a subsample of 783 observations for the post ASU 2011–05 period of
(0.59)
2012 and 2013. The superscript A (MV ) denotes that the variable is scaled by aver-
DY 0.03
age total assets (or beginning market value). The subscript t (t+1 ) denotes that the
(0.26)
variable is in the current year (the next year). RETt is the 12-month raw cumulative
NI/MVt ∗ DIS&SCI 0.74
stock returns starting from the fifth month of the last fiscal year-end to the fourth
(0.01)
month after the current fiscal year-end. DIS is an indicator variable equal to one if a
OCI/MVt ∗ DIS&SCI −0.68
firm presents OCI in IS, and zero if a firm presents OCI in SCI. For each explanatory
(0.22)
variable, the coefficient estimate is reported on the top, and the p-value based on
DIS&SCI −0.02
a two-tailed t-test is reported in parentheses at the bottom.
(0.45)
Intercept 0.14 0.13 0.16
(0.00) (0.00) (0.00)
Number of Obs. 1663 1663 1663 to present OCI under ASU 2011–05 does not affect earnings conti-
Adjusted R2 2.47% 5.49% 3.15% nuity or value implications. This reinforces FASB’s notion that the
F-value 22.05 20.30 11.81
Prob > F 0.00 0.00 0.00
key difference in OCI disclosure is between a performance report
and a non-performance report, rather than between two different
This table presents the regression results on the value implications of comprehen- types of performance reports.
sive income (CI), net income (NI), and other comprehensive income (OCI), based
on firms’ OCI presentation formats. The superscript MV denotes that the variable is
scaled by beginning market value. The subscript t denotes that the variable is in the
current year. RETt is the 12-month raw cumulative stock returns starting from the 4. Conclusion
fifth month of the last fiscal year-end to the fourth month after the current fiscal
year-end. DY is an indicator variable equal to one if a firm’s fiscal period ends in
2012 and 2013, and zero if in 2010 and 2011. DIS&SCI is an indicator variable equal
This paper empirically investigates whether the mandatory
to one if a firm reports OCI in either the income statement (IS) or the statement change of OCI presentation format in ASU 2011–05 achieves the
of comprehensive income (SCI), and zero if a firm presents OCI in the statement FASB’s stated objective of improving the transparency of financial
of changes in stockholders’ equity (SCSE). For each explanatory variable, the coeffi- reporting. Main findings of this paper are as follows. First, ASU
cient estimate is reported on the top, and the p-value based on a two-tailed t-test
2011–05 is found to greatly reduce the continuity of OCI and net
is reported in parentheses at the bottom.
income 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
The first two columns find that OCI presentation in IS or SCI does significantly increase the ability of net income to influence stock
not make any difference in the continuity of total comprehensive prices. As OCI and net income are intertwined, the more salient
income, net income and OCI (insignificant coefficients on CItA ∗ DIS , presentation of OCI enables investors to better interpret earnings.
NItA ∗ DIS and OCItA ∗ DIS ). The next two columns investigate whether Collectively, these findings suggest that the new standard improves
reporting OCI in IS versus SCI affects the value implications of transparency and usefulness of the reported OCI information. Nev-
earnings. The third column finds that when OCI is reported in IS, ertheless, caution needs to be taken in drawing inferences from
annual stock returns have a greater association with total com- the results, as this study is limited by the scope of its investiga-
prehensive income (coefficient on CItMV ∗ DIS significant at the 10% tion. The reliance on large S&P 500 firms, albeit consistent with
level). After decomposing comprehensive income into net income Kim (2016) and Lin et al. (2017), implies that the message cannot
and OCI, the fourth column shows that reporting OCI in either IS be generalized to medium and small public firms. Moreover, the
or SCI no longer makes any difference in the ability of net in- focus on the short-term effects of ASU 2011–05 indicates that the
come or OCI to influence stock returns (insignificant coefficients conclusion cannot be extended to the long-term consequences of
on NItMV ∗ DIS and OCItMV ∗ DIS ). Overall, whether IS or SCI is used ASU 2011–05.

Please cite this article as: L. Shi et al., Enhanced disclosure of other comprehensive income and increased useful-
ness of net income: The implications of Accounting Standards Update 2011–05, Research in Accounting Regulation (2017),
https://doi.org/10.1016/j.racreg.2017.09.005
JID: RACREG
ARTICLE IN PRESS
6 L. Shi et al. / Research in Accounting Regulation 000 (2017) 1–6
This paper has policy implications regarding current and future
FASB projects. In May 2014, the FASB launched the Simplification
Initiative to “improve or maintain the usefulness of the informa-
tion reported to investors while reducing costs and complexity in
financial reporting”.13 As of July 2016, the FASB has nine completed
and six ongoing simplification projects on a wide range of top-
ics (Jones, 2016). This initiative results in a sequence of Account-
ing Standards Updates issued or proposed by the FASB. Examples
include ASU 2015–03 Simplifying the Presentation of Debt Issuance
Costs (FASB, 2015) and Proposed ASU Simplifying the Classification
of Debt in a Classified Balance Sheet (FASB, 2017). Since the stated
objective for the Simplification Initiative is similar to that for ASU
2011–05, the finding that the presentation format affects the trans-
parency and usefulness of financial information renders support to
the rationale behind FASB’s Simplification Initiative.
Acknowledgements
We thank Gary Previts (Editor), two anonymous reviewers, Yang
Cheng, Jung Yeun Kim, and workshop participants at the 2017
American Accounting Association (AAA) Ohio Region Meeting in
Columbus, Ohio and the 2017 AAA Annual Meeting in San Diego,
California for their helpful comments.
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