Effects of comprehensive income reporting on decision making quality of listed companies in Thailand.

AuthorKaewprapa, Kanok-on

    In 1997, the Asian financial crisis had happened around the world. One of several causes has blamed it on the financial statements of listed companies that failed to send warning signals to investors or other stakeholders. Moreover, it did not reflect actual the financial position and performance of the company because accounting standard is not universal. This effect has an impact on many countries meaning that they must prominently improve accounting standard. Therefore, Federation of Accounting Profession under the Royal Patronage of His Majesty the King has largely been reformed and developed Thai accounting standard (TAS) in order to increase universality and harmonize with international accounting standard. IAS or International Financial Reporting Standard, (IFRS) enhances investor's confidence in quality of financial reporting. Interestingly, the Federation has improved TAS 1 (revised 2009) "Presentation of Financial Statement". TAS 1 imposes that all companies must present the statement of comprehensive income and TAS 1 effective date on 1 January 2011. The Federation's objectives for issuing TAS 1 are to enhance the transparency, predictability, relevance or usefulness of financial statements and according with IFRS.

    Comprehensive income is generated by the capital maintenance approach which is a broader concept of performance measurement. FASB (1997) provides the definition of comprehensive income that it is the change in equity (net assets) of a business enterprise during a period of transactions and other events and circumstances from non-owner sources. It includes all non-owner changes in equity (in contrast to net income which does not include some changes in equity) (Brauchle and Reither, 1997). Comprehensive income consists of 2 major components, namely, (a) components of profit or loss (or net income) and (b) other comprehensive income (i.e. items of incomes and expenses that are not recognized in profit or loss as required or permitted by other IFRS) (Deloitte, 2009). According to TAS, other comprehensive incomes have all 5 items including (1) changes in revaluation surplus, (2) actuarial gains and losses on defined benefit plans recognized, (3) gains or losses arising from translation the financial statements of a foreign operation, (4) gains and losses on remeasuring available for sale financial assets, and (5) the effective portion of gains and losses on hedging instruments in a cash flow hedge (Vichitlekarn, 2011). These items may be presented either in a single statement of comprehensive incomes or in a separate income statement and a statement of comprehensive income. (Deloitte, 2009).

    Under the statement of comprehensive income, all companies must face with recognizing unrealized gain or loss items that are generated by fair value or market value and preparing such information in order to present change in equity, exclude transaction form owner sources. Thus, comprehensive income reporting has played a significant role in providing information on performance during the period to stakeholder in order to make judgment and decision. Conceptually, comprehensive income reporting consists of economic income, non-owner change and realized/unrealized gain or loss. First, economic income is defined in terms of economic wealth and real income that reflected economic value and it has proxy as fair value (Schneider and Rodi, 2000). Second, non-owner change is all items of income and expense that cause changes in equity, except investments by owners and distributions to owner (Deloitte, 2009). Last, realized/unrealized gain or loss refers to revenue and expense as meaning of accounting framework which is the expansion of the concept of profits and expresses not only the cause of net profit or loss in operating activities, but also the cause of unrealized holding value measured by fair value of a company (Kishikawa et al., 2009).

    At present, this practice, however, is still controversial whether comprehensive income has usefulness. The perspectives of proponents have argued that comprehensive income reporting increased directly the accounting information usefulness in financial statement on the decision making quality to stakeholders (i.e. Biddle and Choi, 2003, Chamber, 2007; Kanagaretnam, 2009). Yet, the opponents have argued that comprehensive income reporting is difficult to make judgment and decision (i.e. Kishikawa, 2000; Dhaliwal et al., 1999; Goncharov and Hodgson, 2008). Therefore, this paper hypothesized that comprehensive income reporting has influenced decision making quality through accounting information usefulness. The accounting information usefulness is the qualitative characteristics of financial information that consists of understandability, relevance, reliability, comparability. In addition, the voluntary disclosure that presents in annual report can also moderate the relationship between the comprehensive income reporting and accounting information usefulness. While, the accounting information usefulness is expected to affect the decision making quality, and this relationship is moderated by environmental dynamism.

    Accordingly, the relationships among the comprehensive income reporting, the accounting information usefulness and the decision making quality is examined. To clearly verify the aforementioned relationships, the listed companies in Thailand were chosen as the sample of the study. Data are collected by questionnaire with the chief financial executive of the listed company. Hence, the primary objective of this study is to examine the effect of comprehensive income reporting on decision making quality though accounting information usefulness and to examine whether voluntary disclosure and environmental dynamism moderate influence between the comprehensive income reporting-decision making quality relationship. In this study, the key research questions are: (1) How comprehensive income reporting affects accounting information usefulness, (2) How accounting information usefulness affects decision making quality, (3) Whether the voluntary disclosure moderates the comprehensive income reporting-accounting information relationship, and (4) Whether the environmental dynamism moderates the accounting information relationship-decision making quality relationship.

    This study is outlined as follows. The first section reviews existing significant literature in the areas and streams of comprehensive income reporting, accounting information usefulness and decision making quality, links between the concepts of the aforementioned variables, and develops the key research hypotheses of those relationships. The second explicitly details research methods, including data collection, measurements, and statistics. The third gives the results of the analysis and the corresponding discussion. The final summarizes the findings of the study, points out both theoretical and managerial contributions, and presents suggestions for further research together with the limitations of the study.


    As shown in Figure 1 that based on literature review, comprehensive income reporting affects decision making quality through accounting information usefulness. Voluntary disclosure and environmental dynamism are considered potential moderators affecting the comprehensive income reporting-decision making quality relationships. These relationships are systematically investigated. Thus, the conceptual model is presented as the following.

    2.1 Economic Income

    Economic income is the first dimension of comprehensive income reporting. It is defined in terms of economic wealth and real income that reflect economic value presented as the effects of environment context such as social (S), political (P), economic (E), regulation (R) and technology (T); it is also called the effect of SPERT factor that has influenced the changes in terms of real wealth. Generally, the economic income concept is a measure of the cumulative effect of all events and consequences that affect economic value by using fair value. However, the current accounting model used a mixture of cost and fair value measurement (Schneider and Rodi, 2000). At present, economic income is measured as cash flow plus the change in the fair value of net assets. It will enhance usefulness in predicting the entities future cash flow (IASB, 2002) and transparency rather than historical cost (Fitzpatrick, Raju and Tocco, 2010). In addition, the CFA's (2007) opinion points out that transparency and accessibility of information is just as important to investors as relevant and reliable information (Schroder, 2009) Thus, under this concept, comprehensive income is supported as a proxy of economic value and a new measure of financial performance under the IASB's conceptual framework that supports the ability of this measure that affects the growth, predictive ability and profitability in the long run (IASB, 2002; Pascan, 2000). They include information about the amounts, and variability of profits helps in forecasting future cash flows from the entity's existing resources and in forecasting potential additional cash flows from additional resources that might be invested in the entity (Pascan, 2000).

    Conceptually, it is "all-inclusive" concept or "clean surplus" concept that includes all income, expenses, gains, and losses recognized in the financial statement (Barker, 2004) in order to present alls changes in the economic value of a business entity resulting from all activities and circumstances, except those arising from investments and distributions to owner (Kanagaretham et al., 2009). The value change in all assets and liabilities of a company should reflect causes of the value changes resulting from performance during the period, changes in economic conditions, and changes in market expectations (IASB, 2002). Mainly, they should flow through the comprehensive income statement...

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