Comprehensive Profit Loss Statement contains information about the performance of an entity in a certain periode. The information of entity’s performance is used to value and predict the amount and time for an uncertainty future cash flow. The statement is very useful for so many parties to help them predict the future cash flow, in the context of determining profitability, investment value, and credit worthiness. The users of the information stated on comprehensive profit loss may include investor, creditor, and management. Investor uses the comprehensive profit loss statement to predict the profit and cash flow in the future and make them as an essential input to predict dividen and market price share in the future. Creditors also use the statement of comprehensive income as they have concern with the credit given to the company. With the statement, creditors can value the capability of the company where they give the credit to earn the future cash flow which is needed for the company to pay interest and debt. While both investor and creditor have concern with the company’s comprehensive profit loss statement, then it should be the same for management to have concern with the statement of comprehensive profit loss.
Beside all of its benefit, the statement has also limitations. The users of the comprehensive profit loss statement should notice that the statement is established by using certain assumptions and policies. The limitations of the comprehensive profit loss statement are as follow:
- We can’t put any revenues or expenses which can’t be measured reliably into the statement as standard of financial accounting stipulates so. Financial Accounting Standard (SAK) requisites that revenues and expenses recognized only when those can be measured reliably. So that any transactions affecting the comprenhensive profit loss statement can’t be put in comprehensive profit loss statement if those can’t be measure reliably.
- The amount of profit and loss would be affected by several accounting policies. Management of an enitity is allowed by the standard to choose one of accounting policies and methodes to allocate the cost of fixed assets (depreciation) as stated on the standard. Different methode of deprecation often result different profit or loss. If one company uses the straight line methode and another company uses the double declining methode and other aspects are assumed to be the same then the profit between these two companies will be different.
- The measuring of revenues and expenses involves a judgment from management. Several things involve judgment of management, example: one company may depreciate the fixed asset for 20 year but another company depreciates the akin fixed asset for 15 years. Of course it will result the profit different from one to another.
In Indonesia, the presentation of financial statement is set spesifically on PSAK number 1 (revision of 2009) adopted from IAS (International Accounting Standard) number 12. PSAK 1 covers all aspects associating to the presentation of financial statement.
Not only to present informations about the performance of the company which is important to the investors in making decision relating investments and credits, the comprehensive profit loss statement is also used to evaluate the performance of management in managing the company and used as a consideration to determine a proper compensasion for the management of the company. However, high profit impacted the compensasion for management of the company often leads to earning management. In order to be valued good, many companies try to reach a high profit to meet the investor’s expectation which can affect the compansasion accepted by management. Thereby, management has incentives to do an earning management in order to reach a certain amount of profit presented in the comprehensive profit loss statement.
Earning management is an action of managing the time of recognizing the revenues, expenses, gains and/or losses to reach a certain desire information of profit without breaking the rules stated on the accounting standard. Generally, earning management is done in the form of increasing the profit, management do it by recognizing the revenue earlier than it should be or postponing the recognation of the expense and transfer the expense into the next period. Or it can be done in the form of decreasing the profit in the current periode in order to increase the profit in the next periode, like example by recognizing expenses such as impairment loss in receivable abundantly with an unrealistic assumption.
With all these explanations, we can conclude that earning management could effect the quality of profit presented in the statement. Management of the company through earning mangement can corrupt the profit information resulted by financial statement and make them a mislead information.
Broadly, the elements listed in the comprehensive profit loss statement are total comprehensive pofit loss, revenue, and expense. Total comprehensive profit loss is a change in net asset (equity) in one periode caused by transactions and other events and not caused by transactions with the owners in their capacity as the owners. total comprehensive pofit loss consists of “profit loss” and “other comprehensive revenues”. Profit loss is total revenues diminished by total expenses which are not included into the other comprehensive revenues. Other comprehensive revenues contain revenues and expenses which are not recognized in profit loss, as requisited by standard of financial accounting (SAK). Revenue is every increasing of economic advantages resulting net asset increase in one period in the form of an asset addition or declined liabilities which is not a contribution from the owners. Expense is an inversion of revenue, expense is every declining of economic advantages resulting net asset decrease in one periode in the form of increasing liabilities or decreasing assets which is not a distribution to the owners.
There are two types of the comprehensive profit loss statement form, those are single form and double form. In the single form, profit loss for the year and comprehensive profit loss are presented in one statement while in the double form those are presented in two statements, first statement is for presenting the profit loss for the year and the second one is for presenting the comprehensive profit loss consisted of the profit loss in current periode and other comprehensive revenues. Standard allows the company to present the expenses either in charateristic base or in function base. When the company decided to present the expenses in function base, the company still needs to put an addtional disclosure about the the information of the function base expenses in its accompanying notes.
About the tax relating to the other comperhensive revenues, it can be presented in the statement through gross base or net base. If the company choose to use gross base to present the tax of other comprehensive revenues, the company put the tax and its amount in the statement below the other comprehensive revenues and present each of other comprehensive revenues in the gross amount (before diminished by the tax). But if the company choose to use net base then the company doesn’t need to put the tax in the statement, the company just need to diminished each of the amount of other comprehensive revenues by the amount of related tax.