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The income statement’s advantages are that it gives a generally full impression of the company’s financial situation, including both revenues and expenses, over a period of time, which is called a fiscal period. There are no exclusions of revenue and expenses, as the list includes all and every one of their sources, representing the company’s net income. The reader of the statement will therefore gain full information of how the company functions.
However, the aforementioned reader’s impression is only representable of the company’s usual, day-to-day situation. Because of comprehensive income, which is generally considered unimportant and not dependent on a firm’s performance, being listed separately, the income statement might not include important information during crises. Still, the information separated to the category of comprehensive income may be important as it includes losses from foreign currency translations, and gains or losses on investments. Arya & Nagar (2018) offer to include more information into the statement as special items in a separate category to increase its stewardship value, but this is yet to be implemented widely in practice. While the FASB requires this information to be reported, the fact that it is listed separately makes an opportunity of a stakeholder missing it.
The income statement has other shortcomings, as the firms’ owners sometimes try to manipulate it to their gain. For example, they try to present their earnings as more significant that in reality, because they are the most important aspect of business (Reimers, 2011). Marking debts or securities as available for sale presents an opportunity to evade putting them into the income statement, only classifying them as equity changes comprehensive income (Reimers, 2011). Certain analytical methods such as the vertical analysis pay too much attention to sales as well (Reimers, 2011). With such a tendency, I consider it possible that comprehensive income may be ignored, while it may include important data on results of critical situations such as international conflicts or large failed investments.
References
Arya, A., & Nagar, N. (2018). Stewardship Value of Income Statement Classifications: An Empirical Examination. Journal of Accounting, Auditing &Amp; Finance, 36(1), 56–80. Web.
Reimers, J.L. (2011). Financial Accounting: A Business Process Approach (3rd ed). Pearson.
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