Value Relevance of Mandated Comprehensive Income Disclosures

This study provides some market based evidence on the usefulness of comprehensive income disclosures in a Statement of Changes in Equity (SCE). In particular, we focus on two 'dirty surplus' items - fixed asset revaluations and foreign currency translation adjustments - that are excluded from net income but are included in comprehensive income in New Zealand. Traditionally, information about fixed asset revaluations and foreign currency translation adjustments has been included in footnotes to the financial statements, but many countries (including New Zealand) now require that these items be disclosed separately as part of comprehensive income in a SCE. We examine whether these disclosures provide new information which is value relevant. First, we examine whether separate disclosure of the components of comprehensive income provides information which is incrementally value relevant above the aggregate comprehensive income figure. Second, we examine whether the incremental value relevance of the components of comprehensive income - relative to net income - increases in periods after the SCE was required. Using a sample of listed New Zealand firms, we find no evidence that separate disclosure of the comprehensive income items provides any value relevant information above and beyond the aggregate comprehensive income figure. Likewise, in the post-SCE period, we find no evidence of an increase in the incremental value relevance of fixed asset revaluations or foreign currency translation adjustments over net income. While our results are sensitive to outliers, they suggest that standards requiring disclosure of a SCE may not be necessary.