The value relevance of Other Comprehensive Income (OCI)

The presentation of profit (loss) and Other Comprehensive Income (OCI) – amongst other interesting points introduced by IAS 1 with reference to financial statement presentation – plays a new and fundamental role in the accounting field. From 31 December 2009, the income statement has been renamed the “Single Statement of comprehensive income” and includes two different statements: a) the Separate Income Statement; b) the Statement of Other Comprehensive Income (OCI), namely, items that in the past would have been presented in the Statement of changes in equity. The new presentation format generates some interesting questions from both (i) a conceptual side, since it introduces a rather new concept of “profit”, and from (ii) an empirical side, since IAS 1 permits different choices of accounting presentation and OCI is likely to be affected by a considerable number of accounting standards. This study focuses on Italian companies listed on the FTSE MIB, which includes the biggest and most influential entities on the Italian Stock Exchange, adopting: a) a theoretical approach: since OCI and OCI presentation are closely related to the accounting framework and to some of the milestone issues in accounting literature; b) an empirical perspective: since (i) IAS 1 allows a number of different presentation formats (examined in terms of their content through document analysis of the financials of the entities included in the sample) and (ii) this study measures the impact of the different accounting standards related to OCI.