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An evaluation of SFAS No. 130 comprehensive income disclosures

Author

Listed:
  • Dennis Chambers

    (University of Kentucky)

  • Thomas J. Linsmeier

    (Financial Accounting Standards Board)

  • Catherine Shakespeare

    (University of Michigan)

  • Theodore Sougiannis

    (University of Illinois and ALBA)

Abstract

In this study, we provide evidence on the pricing of other comprehensive income (OCI) that differs from most evidence in prior research. Prior archival research has largely concluded that OCI is not priced by investors. In contrast, we provide evidence in the post-SFAS 130 period that OCI is priced on a dollar-for-dollar basis as is predicted by economic theory for transitory income items. We attribute this finding to our use of post-SFAS 130 as-reported measures of OCI rather than pre-SFAS 130 as-if estimates of OCI measures. Furthermore, we document that two components of OCI, foreign currency translation adjustment and unrealized gains/losses on available-for-sale securities, are priced by investors. In the post-SFAS 130 period, we also find that the type of financial statement in which firms report OCI and its components affects pricing, consistent with the conclusions of prior experimental research. However, our evidence suggests that investors pay greater attention to OCI information reported in the statement of changes in equity, rather than in a statement of financial performance. This could be attributed to investors becoming more familiar in the post-SFAS 130 period with the predominant reporting of OCI and its components in the statement of changes in equity. These findings may be relevant to both the Financial Accounting Standards Board and the International Accounting Standards Board, which jointly are undertaking a new project that, in part, is addressing financial statement presentation of OCI items.

Suggested Citation

  • Dennis Chambers & Thomas J. Linsmeier & Catherine Shakespeare & Theodore Sougiannis, 2007. "An evaluation of SFAS No. 130 comprehensive income disclosures," Review of Accounting Studies, Springer, vol. 12(4), pages 557-593, December.
    • Handle: RePEc:spr:reaccs:v:12:y:2007:i:4:d:10.1007_s11142-007-9043-2
    DOI: 10.1007/s11142-007-9043-2
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    References listed on IDEAS

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    Cited by:

    1. Minyue Dong & Stephen Ryan & Xiao-Jun Zhang, 2014. "Preserving amortized costs within a fair-value-accounting framework: reclassification of gains and losses on available-for-sale securities upon realization," Review of Accounting Studies, Springer, vol. 19(1), pages 242-280, March.
    2. Stephen Makar & Li Wang & Pervaiz Alam, 2013. "The mixed attribute model in SFAS 133 cash flow hedge accounting: implications for market pricing," Review of Accounting Studies, Springer, vol. 18(1), pages 66-94, March.
    3. Victoria Dickinson & Paul Kimmel & Terry Warfield, 2012. "The accounting and market consequences of accelerated share repurchases," Review of Accounting Studies, Springer, vol. 17(1), pages 41-71, March.

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    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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