Comprehensive income and financial performance ratios: which potential effects on RoE and on firm’s performance evaluation?

The reporting of comprehensive income is becoming increasingly important. The new version of IAS 1 (the so called IAS1- revised) issued by IASB on September 2007 provides the mandatory reporting of other comprehensive income items for the EU listed companies. This circumstance is of particular relevance in the Italian context, characterized by a strong historical cost accounting model and by concentrated ownership publicly traded companies. This study aims to examine the potential impact of unrealized gains and losses reporting on entities performance ratio, and thus on investors’ decision process, by investigating its effects on Italian listed entities. The results show that the first time adoption of comprehensive income reporting does significantly affect Italian listed entities performance, notwithstanding the apparent irrelevant spread existing between net income and comprehensive income book values.