On the IASB Comprehensive Income Project, Neutrality of Display and the Case for Two EPS Numbers
P. VAN CAUWENBERGE
I. DE BEELDE
The IASB is presently involved in a project on reporting comprehensive income. Since the IASB accounting system is a mixture of two income determination methods, to wit historical cost accounting and fair value accounting, an interesting question pertains to whether the display of comprehensive income should be neutral with regard to these two competing paradigms. This paper scrutinizes, with a valuation perspective in mind, the typical arguments made by proponents of historical cost net income and comprehensive fair value income and finds that claims for exclusive reliance on a single concept of earnings are untenable. This means that a case could be made for advancing neutral income display as a policy objective. The matrix format of comprehensive income that is proposed under the IASB performance project certainly allows for such a neutral interpretation. However, given the importance of summarization in financial analysis, as is most extremely reflected in the focus on the earnings per share (EPS) number, if neutrality is to prevail, then it should also be reflected at the highest level of summarization of financial performance reporting. In other words, mandatory publication of two EPS numbers, one for net income and one for comprehensive income, should be considered. Possible effects on perception and actual use of financial reports that should enter such a consideration are suggested as topics for experimental research.
Comprehensive income; Neutrality of income display; Double EPS reporting
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.