INFORMING THE IASB/FASB STANDARD SETTING PROCESS

Shahwali Khan

School of Accountancy, College of Business,

Massey University, Auckland, New Zealand

Prof. Dr. Michael E. Bradbury

School of Accountancy, College of Business,

Massey University, Auckland, New Zealand

ABSTRACT

Despite analysts’ demands for (and standard setters’ preferences for) a single statement of

comprehensive income (CI), neither the IASB nor the FASB has been able to achieve this

objective. Estimation of income is important for valuation and stewardship and the issue of

misinterpretation of CI most likely relates to the perceived volatility and value relevance of CI.

Proponents of single statement argue that CI brings discipline to managers and analysts as it

requires them to consider all factors affecting the owners’ wealth. Opponents believe that the

inclusion of other comprehensive income (OCI) along with core business results lead to

significant misinterpretations of an entity’s performance since these items are transitory.

Therefore, in this paper we observe the relationship of market measures of risk and valuation

with net income (NI) and OCI using a sample of New Zealand firms. We hypothesize standard

deviations of beta, volume of trade and share price have a relationship with standard deviation of

NI and OCI and that companies reporting OCI are different from companies not reporting OCI.

Results show relationship of beta, volume of trade and share price with NI and OCI. However,

companies reporting OCI are not different from companies not reporting OCI. These results

again support the view that OCI is redundant to valuation. Thus reporting OCI in a single

statement or a separate statement might only result in increasing the preparation cost and

significant misinterpretation of financial statements.

Keywords: Comprehensive Income, Other Comprehensive Income, Net Income, Volatility

INTRODUCTION

Traditionally, managers (investors) have lobbied for less (more) comprehensive definitions of

income (Biddle and Choi, 2006). Managers prefer the narrower and controllable definition of net

income on the basis of contracting arrangements. Whereas, investors demand a more

comprehensive definition (clean surplus) believing that such a figure is less subject to

manipulation and is more in accordance with valuation theory. Despite having a preference for

‘all inclusive’ income and a single statement of comprehensive income (CI), both the

International Accounting Standards Board (IASB) and the Financial Accounting Standard Board

(FASB) have not been able to achieve this objective. The FASB’s Exposure Draft: Reporting

Comprehensive Income requires a clear display of CI and its components in a statement of

performance. However, the final standard (SFAS 130 Reporting Comprehensive Income) does

not specify the statement in which CI must be displayed. Similarly, the IASB allows a one or two

statement option in IAS 1 Presentation of Financial Statements.

The efficient market hypothesis suggests the ‘geography’ of reporting other comprehensive

income (OCI) should not matter. As there are no new recognition or measurement rules

incorporated into IAS 1, analysts can simply reformat existing statements to achieve a single

statement of comprehensive income. On the other hand, several studies have shown that analysts

make better judgement using a single statement of CI (e.g., Hirst and Hopkins, 1998; Maines and

McDaniel, 2000; Tarca et al., 2008).

In response to a Discussion Paper: Preliminary Views on Financial Statement Presentation,

issued by IASB/FASB joint project (which proposes net income and OCI to be reported in a

single statement), respondents that disagree with a single statement presentation argue that OCI

items are volatile, transitory in nature and not value relevant. Therefore, their inclusion along

with core business results will confuse users of financial statements and lead to significant

misinterpretations of an entity’s performance. However, there is little empirical evidence on the

volatility of CI and its consequences. There is also mixed opinion in the literature whether

reporting OCI is value relevant or not. Studies like Hirst and Hopkins (1998), Biddle & Choi

(2006) and Chambers et al. (2007) show that OCI is value relevant whereas others like Dhaliwal

et al. (1999), Dehning and Ratliff (2004) and Lin et al. (2007) have proved it to be less or not

value relevant.

In light of the above the current study is motivated where we observe the relationship of three

stock market-based risk and valuation proxies, i.e, company beta, company volume of trade and

company share price with net income (NI) and OCI (NI and OCI collectively known as CI) using

a sample of 46 New Zealand firms. Most prior research that describes CI and its components has

been undertaken in the US and in the context of the introduction of SFAS 130 (e.g.; Bhamornsiri

and Wiggins, 2001; Jordan and Clark, 2002; Pandit and Phillips, 2004; Kreuze and Newell,

1999). New Zealand is a different setting in which to examine this issue because the nature of

OCI is different. First, the revaluation of non-current assets is common. Second, New Zealand

firms employ more financial instruments relative to the US (Berkman et al., 1997). This latter

reason is important because the move to International Financial Reporting Standards (IFRS)

requires all derivatives to be on-balance-sheet but allows gains and losses to flow directly

through equity for some items (e.g., available-for-sale investments and cash flow hedge

reserves). In the presence of the said differences we develop and test two hypotheses, one that

standard deviations of beta, volume of trade and share price have a relationship with standard

deviation of net income and OCI and second that companies reporting OCI are different from

companies not reporting OCI.

Results show evidence to indicate that there is a relationship of standard deviations of beta,

volume of trade and share price with standard deviation of net income and OCI. However,

Hotelling’s T2 test results show that companies reporting OCI are not different from companies

not reporting OCI. These results are similar in a way to other empirical studies such as Dhaliwal

et al. (1999) and Cahan et al. (2000), where they do not find any strong evidence to conclude that

OCI is value relevant. However, they do find evidence that net income is value relevant and we

assume it is the same for the current study. Net income might be driving the results to be

significant. These results again support the view that OCI is redundant to valuation. Thus

reporting OCI in a single statement or a separate statement might only result in increasing the

preparation cost of financial statements.

Section 2 describes the background, the literature and the development of hypotheses.

Section 3 describes the sample, data and results while the last section gives the conclusion.

BACKGROUND, LITERATURE REVIEW AND HYPOTHESES

DEVELOPMENT

Background

Income is normally referred to as changes in equity except those resulting from owners’

investment activities and distribution to owners. There are two approaches used to calculate

income:

1. Income as a measure of performance of an enterprise and its management.

2. Income as enhancement of investor wealth.

The first approach considers that income is generated only because of purposeful activities, in

particular, due to the recurring consumption of fixed assets (cited in Newberry, 2003, p-328),

whereas, other gains and losses that seem irrelevant to purposeful activities are excluded and

such changes in the value of capital are not treated as a part of income. This approach is also

referred to as current operating performance.

In contrast, the concept of income as an enhancement of investor wealth captures income

from the investor’s angle and it is considered to be the difference between the amount invested

and the amount either distributed or available for distribution (Newberry, 2003). The approach is

also called an all-inclusive concept of income.

The FASB has adopted the enhancement of wealth approach or the asset-liability view as

quoted sometimes in literature for the conceptual framework (Robinson, 1991, Newberry, 2003).

FASB Concept Statement No 3 “Elements of Financial Statements of Business Enterprises

(1980)” replaced the term “earnings” (used in FASB Statement No 1) with “Comprehensive

Income”. Concept Statement No. 3 was replaced by Concept Statement No. 6, “Elements of

Financial Statements (1985a)”, which also extended its scope to not-for-profit organizations

(Johnson et al., 1995 p-129). Johnson et al. (1995) state that the board concluded earnings is a

narrower term as compared to comprehensive income and decided to make it a component of

comprehensive income but did not give any definition of the term earnings in any of its

subsequent statements. FASB even after issuing SFAS No. 130 left with preparers of financial

reports the liberty to determine sub-components within net income. This gave a chance to

preparers to promote their own sub-components of income (commonly referred to as pro-forma

figures or street measures, such as EBIT & EBITDA), in order to divert users’ attention away

from net income and comprehensive income figures (Newberry, 2003). These pro-forma figures

gradually excluded many items such as restructuring costs and even marketing cost and argued

that these are non-recurring. FASB’s adoption of the enhancement of wealth concept had issues

like failure to identify valuation models for assets and liabilities and retention of historical cost,

e.g, FASB required continuous application of the realization principle and at the same time

required asset impairments, which was in line with the enhancement of wealth concept

(Newberry, 2003).

The concept of all- inclusive income led to the creation of the term “comprehensive income”,

which resulted due to the desire of financial statement users of having one figure for all non-

owner changes in equity for a particular period (Robinson, 1991). Many items bypassing the

income statement and going directly to owners’ equity led to many controversial issues, which

formed the basis for having a figure that would include all components of income leading to

changes in the overall financial position of organizations. Facts like increasingly complex

business transactions, increasing diversity of business transactions, and the increasing

sophistication of user groups called for comprehensive income and at the same time for the asset-

liability approach for measuring earnings (Robinson, 1991).

2.1.1 Comprehensive Income

Comprehensive income is defined in Concepts Statements No 3 & 6 as “Comprehensive

Income is the change in equity (net assets) of a business enterprise during a period from

transactions and other events and circumstances from non-owner sources. It includes all changes

in equity during a period except those resulting from investments by owners and distributions to

owners” (Johnson et al., 1995, p-129).

2.1.2 Components of Comprehensive Income

FASB identify the following as components of comprehensive income:

? Foreign currency translation adjustments, FASB Statement No. 52, Foreign Currency Translation

(1981b), paragraph 13;

? Gains and losses on foreign currency transactions that are designated as, and are effective as,

economic hedges of a net investment in a foreign entity, commencing as of the designation date,

statement 52, paragraph 20a;

? Gains and losses on intercompany foreign currency transactions that are of a long-term investment

nature (that is, settlement is not planned or anticipated in the foreseeable future), when the

entities to the transaction are consolidated, combined or accounted for by the equity method in

the reporting enterprise’s financial statements, Statement 52, Paragraph 20b;

? A change in the market value of a future contract that qualifies as a hedge of an asset reported at fair

value unless paragraph 11 requires earlier recognition of a gain or loss in income because high

correlation has not occurred, FASB Statement No. 80, Accounting for Future Contracts (1984a),

paragraph 5;

? Unrealized holding gains and losses on available-for-sale securities, FASB Statement No. 115,

Accounting for Certain Investments in Debt and Equity Securities (1993), paragraph 13;

? Unrealized holding gains and losses that result from a debt security being transferred into the

available-for-sale category from the held-to-maturity category, Statement 115, paragraph 15c;

? Subsequent increases in the fair value of available-for-sale securities previously written down as

impaired, Statement 115, paragraph 16;

? Subsequent decrease in the fair value of available-for-sale securities, if not an other-than-temporary

impairment, previously written down as impaired, Statement 115, paragraph 16;

? The excess of the additional pension liability over unrecognized prior service cost (that is, net loss

not yet recognized as net periodic pension cost), FASB Statement No. 87, Employers’

Accounting for Pensions (1985b), paragraph 37.

2.1.3 In Context of Theory

By closely observing the issue of comprehensive income, it may be inferred that here exists an

agency problem between managers and investors. From the theory stand point managers are

interested in reporting net income in order to have better contracts such as compensation

contracts, bonus contracts, debt contracts etc (contracting theory). In contrast, investors are more

interested in the figure of comprehensive income which is subject to less manipulation and is

more in accordance with the valuation theory.

LITERATURE REVIEW

Whether to account through net income or comprehensive income is not a new issue and is

related to the choice between the income statement approach and the balance sheet approach

(York, 1941). In attempting to make the income statement representative of the normal

operations for the period, advocates recommend that some items be accounted through “surplus

adjustments” (e.g., Sanders et al., 1938). Others prefer a wider definition of income where all

Contracting

Vs

Firm

Investors

Managers

Net Income

Comprehensive

Income

gains and losses are reported in income for the period (e.g., Paton and Littleton, 1940). The

American Accounting Association (1936) made comprehensive income a central feature of its

tentative statement of underlying accounting principles.

Pressure for the reporting of CI has come from both internal and external motivations (Johnson

et al., 1995). The internal motivations arise from the accounting boards’ financial instruments

projects. To ease tension over the concerns that fair value increases the volatility of income, both

the IASB and FASB have allowed price changes of certain financial instruments (e.g., available-

for-sale and cash flow hedges) to bypass income. However, there is concern that dirty surplus

items are important to the assessment of financial performance and financial position and that the

complexity of reporting financial instruments can be reduced by a single statement of

performance. External motivations arise because major financial analys t associations support the

reporting of comprehensive income in a single statement (AIMR, 1993; CFA, 2007).

Theoretical support for CI comes from excess earnings approaches to valuation, including

traditional residual income formulae (Preinrich, 1938; Peasnell, 1982; Ohlson 1995; Feltham and

Ohlson, 1995). While valuations rely on the forecasting of future payoffs, current income is the

realisation of future forecasts. Hence, for measuring forecast errors comprehensive income is the

most useful for equity valuation (AAA, 1997). The important tasks of analysts is to decide which

components of CI are not predictable (i.e., have mean-zero forecast errors).

Despite analysts’ demand for a single statement of CI, financial statement preparers make, at

least, four types of complaints (Hirst and Hopkins, 1998). First, they argue that comprehensive

income will be looked at to the detriment of other performance measures. However, the AAA

(1997) argues that CI brings discipline to managers and analysts as it requires them to consider

all factors affecting the owners’ wealth. Second, preparers also argued that the information in CI

is redundant because it can be found elsewhere in the financial statements. Hirst and Hopkins

(1998) provide evidence that display matters. They show that CI in a single statement is more

effective in communicating value relevant information than reporting CI in a statement of change

in equity. Maines and McDaniel (2000) show that display of CI is also important for

nonprofessional investors. Third, they argue that multiple performance measures will be

confusing. However, Tarca et al. (2008) show that financial statement users can understand a

single statement of comprehensive income, including a matrix format of comprehensive income

proposed by Barker (2004).

Fourth, opponents of CI state that the volatility inherent in components of CI will cause an

increased perception of the firm’s risk. Trueman and Titman (1988) argue that income smoothing

allows firms to reduce perceived earnings volatility to obtain cheaper debt financing. Ronen and

Saden (1981) argue that income smoothing is potentially useful as it allows managers to signal

private information about the level and persistence of future earnings, without having to reveal

proprietary information. Barth et al. (1995) find that, for a sample of 137 banks over the period

1971 and 1990, fair value based earnings are more volatile than historical based cost earnings.

However, they find that share prices do not reflect the incremental volatility. Hodder et al. (2006)

examine the risk relevance of the standard deviation of three performance measures (net income,

comprehensive income and a constructed fair value income measure) for 202 US commercial

banks from 1996 to 2004. They find the constructed measure reflects elements of risk not

captured by volatility in net income or comprehensive income. Hence, the volatility of CI is an

important issue in resolving the decision of whether to report a single statement on

comprehensive income.

An important study is done by Dhaliwal et al. (1999), they do not find any evidence that

comprehensive income is more strongly associated with returns/market value nor is it a better

indicator of future cash flows/income than net income. Rather net income has strong association

with the market value of equity and predicts future cash flows and income in a better manner.

However, the only component of comprehensive income, which improves association between

income and returns, is marketable securit ies adjustment and the rest of the components of other

comprehensive income are considered as factors adding noise to comprehensive income.

Cahan et al. (2000) examine the value relevance of mandated comprehensive income

disclosures. The study is aimed at providing market-based evidence on the usefulness of

accounting standards (such as SFAS No. 130, NZ FRS 2, UK FRS 3), which require the

disclosure of comprehensive income. Market-based tests are conducted to look for evidence to

prove that other comprehensive income items provide information that is incremental to the

aggregated figure of comprehensive income and secondly, whether the incremental value

relevance of other comprehensive income items relative to net income increase after the

introduction of standards mandating their reporting. For the test, fixed assets revaluation and

foreign currency translation adjustments are considered and no such evidence is discovered. The

results conclude that individual disclosure of OCI items have no additional value to investors.

Dehning & Ratliff (2004) examine data for firms in periods immediately before and after the

issuance of SFAS No. 130 and observe that there is no difference in the market response to

comprehensive income adjustments between the periods and this is in accordance with the

efficient market hypothesis, which suggests that solely because of the placement of information,

there is no change in the way the market values information.

HYPOTHESES DEVELOPMENT

There are well accepted theories in finance that establish a relationship between earnings,

common stock value and market beta such as Miller and Modigliani (1958), Graham, Dodd and

Cottle (1962). One of the pioneers in the study of earnings in relation with price and volume is

Beaver (1968) who proved that earnings announcements have informational content and lead to

volume and price reactions. Amongst the others are Ball & Brown (1968) and Bamber (1968)

who used the same measures to prove the utility of income number announced in earnings

reports.

A few studies have provided descriptive evidence of the impact of CI when SFAS 130 was

introduced (e.g.; Bhamornsiri and Wiggins, 2001; Jordan and Clark, 2002; Pandit and Phillips,

2004; Kreuze and Newell, 1999). However, none of these studies provide evidence of CI in a

regime where asset revaluations are common. Conducting the study in New Zealand setting is

interesting as asset revaluation (an item of OCI) is common and New Zealand firms employ

more financial instruments relative to the US. Therefore, we expect to see a significant

relationship of our market-based risk and valuation proxies with net income and OCI. This gives

rise to the first null hypothesis:

H0: There is no relationship of standard deviations of beta, volume of trade and share price with

standard deviation of net income and OCI.

H1: There is a relationship of standard deviations of beta, volume of trade and share price with

standard deviation of net income and OCI.

Many studies in the literature support the fact that net income is more strongly associated with

market value/returns than is OCI. Therefore, we anticipate that we might find different results as

the OCI figure may differ for New Zealand companies compared to studies conducted in other

countries, due to differences in regulations. Hence our second null hypothesis about the centroids

of the multivariate data clouds, based on the above three variables is:

H0: There is no difference between companies reporting OCI and companies not reporting OCI.

H1: There is a difference between companies reporting OCI and companies not reporting OCI.

SAMPLE, DATA ANALYSIS WITH RESULTS AND ROBUSTNESS TEST

3.1 Sample

To test the hypotheses, information about the following variables is collected for companies

listed on New Zealand stock exchange:

1. Net Income.

2. Other Comprehensive Income.

3. Beta.

4. Volume of trade.

5. Share Price.

The data is collected using NZX Deep Archive and DataStream International. Firms that do

not report in New Zealand dollars are not included in the sample. Also firms are required to have

data from 2004 to 2008 for all the five variables to be included in the sample. The final sample

comprises of 46 firms.

Annual data for net income and OCI are hand-collected from the annual financial statements,

statement of total recognised revenues and expenses and the statement of movements in equity.

Since it is generally recommended in finance research to use monthly or weekly data, therefore,

monthly data for beta, volume of trade and share price is downloaded from DataStream

International.

Since the volatility of OCI and the risk associated with it are important issues in resolving the

decision of whether to report a single statement on comprehensive income. We observe the

relationship of beta, volume of trade and share price with net income and OCI using standard

deviations of beta (StDev.Beta), trading volume (StDev.Volume), share price (StDev.Price) and

net income (StDev.NI). Standard deviation for OCI is not calculated since there are companies in

the data with no figure to report for OCI, thus calculating the standard deviation for OCI would

be misleading. Therefore, an ordinal approach is used for OCI starting from 0 to 5 with 0

meaning no OCI to report in any of the five years, 1 meaning OCI reported for one year and so

on up to 5 years. An indicator variable is also used to see whether companies reporting OCI are

different from companies not reporting OCI where ‘Y’ is used for companies reporting OCI and

‘N’ is used for companies with no OCI.

New Zealand stock exchange classifies all the listed companies in six different sectors, which

are:

1. Primary.

2. Energy.

3. Goods.

4. Property.

5. Services.

6. Investment.

The sample consists of companies from all the different sectors and does not focus on any

particular one. The companies have been categorized as “Large” and “Small” on the basis of

assets median calculated from the five-year average assets, with those above the median treated

as large companies and those below the median treated as small companies. However, this

classification is not used in any of the computations rather it is used as a helping tool in

interpreting the statistical analysis.

DATA ANALYSIS WITH RESULTS The following methods of data analysis are used:

1. Principal Component Analysis.

2. Redundancy Analysis.

3. Hotelling’s T-Square.

PRINCIPAL COMPONENT ANALYSIS The central idea of principal component analysis (PCA) is to reduce the dimensionality of a

data set consisting of a large number of interrelated variables, while retaining as much as

possible of the variation present in the data set. This is achieved by transforming to a new set of

variables, the principal components (PCs), which are uncorrelated, and which are ordered so that

the first few retain most of the variation present in all of the original variables.

We conduct the PCA to test for any variations in the data in terms of the original variables

and try to identify any particular patterns that are obvious to the naked eye. We use the means for

beta, volume of trade and share price pooled over the period 2004-2008.

Figure 1

In figure 1, PC1 and PC2 explain 41.36% and 32.41% of the total variation, respectively, in

the original variables. PC1 is highly negatively related to volume of trade and share price and

moderately negatively related to beta. Whereas PC2 is highly positively related to beta,

moderately negatively related to volume of trade and highly negatively related to share price.

Looking at the PCA in figure 1, it can be observed that the companies can be categorized into

two groups on the basis of the given three variables. Companies that have low beta form one

group and companies with high beta tend to form another group. Companies with low beta have

high share price and high volume whereas companies with high beta have lower share price and

low volume of trade. This result is consistent with prior literature that companies with low betas

(lesser risk) should have higher share prices and trading volumes while companies with high

betas (greater risk) should have lower share prices and lower trading volumes. An interesting fact

is that companies within the groups are similar on the basis of assets classification as well.

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Companies in one group such as Auckland International Airport Limited (AIAL), SKYCITY

Entertainment Group Limited (SEG) and Fletcher Building Limited (Fle) are all large companies

with billions worth of assets and one may expect high share price and high volume of trade for

companies of their size. On the other hand is the group containing companies with smaller

amount of assets such as TRS Investments Limited (TRS) and Cynotech Holdings Limited

(Cyno). However, the companies are all a mix of different industries or sectors and cannot be

clearly segmented on the basis of their operating activities.

REDUNDANCY ANALYSIS

Redundancy analysis is a method of multivariate analysis for analyzing the relationship

between two sets of variables. Redundancy analysis maximizes predictability of one set of

variables from the other. It is necessary in redundancy analysis that most, if not all, of the

criterion variables are sufficiently predictable from the predictor set to obtain a large value of

redundancy index.

We perform redundancy analysis to test the null hypothesis of no significant relationship of

standard deviations of beta, volume of trade and share price with standard deviation of net

income and OCI. The results show an F-value of 61.33 and a p-value of 0.01.

Figure 2

On the basis of the large small p-value (0.01), we reject the null hypothesis of no relationship of

standard deviations of beta, volume of trade and share price with standard deviation of net

income and OCI. Since net income and OCI explain statistically significant percentage of the

variation in beta, volume and share price.

HOTELLING’S T2

Hotelling's T2 is a test to assess the statistical significance of the difference on the means of

two or more variables between two groups. It is a special case of MANOVA used with two

Histogram of pF.perm

pF.perm

Fre

quen

cy

30 40 50 60 70 80 90

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groups or levels of a treatment variable. The null hypothesis is that centroids do not differ

between two groups.

To test the second null hypothesis we conduct the Hotelling’s T2 test and the results show that

the p-value is greater than 0.05. Thus we retain the null hypothesis of no difference between

companies reporting OCI and companies not reporting OCI with respect to the standard

deviations of these variables.

ROBUSTNESS TEST To examine the robustness of our results, we test the same hypotheses using means of all the

five variables pooled over 2004-2008. With respect to our first hypothesis, we observe the

relationship of means instead of standard deviations. Thus we test the null hypothesis of no

relationship of means of beta, volume of trade and share price with mean of net income and OCI.

We conduct the redundancy analysis and get the same results with a p-value of 0.01. Therefore,

we reject the null hypothesis and retain the alternate hypothesis. With respect to our second

hypothesis that the centroids do not differ between two groups and that there is no difference

between companies reporting OCI and companies not reporting OCI, we perform the Hotelling’s

T2 test. Once again we get similar results with a p-value of 0.11, which is greater than 0.05

significance level. Hence we retain the null hypothesis of no difference between companies

reporting OCI and companies not reporting OCI.

CONCLUSION

Proponents of OCI argue that it provides value relevant information; therefore, it should be

reported in financial statements, preferably in income statement. Thus an income statement

should report net income and OCI. Opponents on the other hand believe OCI items are transitory

in nature, therefore, not value relevant and should not be included with core earnings of a

business. Therefore, an objective of this study is to provide the IASB/FASB project Financial

Statement Presentation empirical evidence of the relation of stock market-based risk and

valuation measures such as beta, volume of trade and share price of a company with NI and OCI.

We collect data for a sample of 46 New Zealand firms over the period 2004 to 2008. We

choose New Zealand firms since the revaluation of non-current assets is common and firms here

employ more financial instruments relative to the US (Berkman et al., 1997). The mentioned

items are an integral part of OCI, therefore, we speculate the OCI figure to have a significant role

in companies’ performance and valuation. Thus two hypotheses are developed and tested, one

that the standard deviations of beta, volume of trade and share price have a relationship with

standard deviation of net income and OCI and second that companies reporting OCI are different

from companies not reporting OCI.

Results provide evidence to conclude that there is a relationship of standard deviation of beta,

volume of trade and share price with standard deviation of net income and OCI. Further,

companies reporting OCI are not different from companies not reporting OCI with respect to the

standard deviations of these variables. These results again support the view that OCI is redundant

to valuation. Thus reporting OCI in a single statement or a separate statement might only result

in increasing the preparation cost of financial statements.

Although the evidence provided in this project can only be regarded as preliminary, yet the

results may give a clue to standard setters to decide whether or not to move to a single statement

of comprehensive income.

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