OCI versus NI

A company decides to classify new investments as available-for-sale because if classified this way, the gains or losses will go to OCI and not to net income.

Previously the company classified similar investments as trading securities and the company had a hit to net income. The comptroller had not budgeted for this.

The controller believes this new classification will provide better control over the budget.

Discuss:

1. Do you consider this to be ethical?

2. What effect on stock price would this change have? (Will investors react to this?)

3. How big of an effect will this change have on stock price?