Accounting Comparability

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The essay below is going to be analysing and explaining the accounting principal of comparability which briefly means that is a “quality of accounting information that addresses the usability of financial information” (My Accounting Course 2015) and also the importance of investor confidence in the financial statements. Furthermore, there will be an illustration by explaining a particular situation where inconsistencies in accounting treatments can undermine comparability. The accounting principle ‘comparability’ is one of the main characteristics of financial statements (Dunn 2010) so; “in 1989 IASC launched a major initiative to bring greater comparability to financial statements (Roberts, Weetman, Gordon 2008)”. The initiative was represented…show more content…
One of the main characteristics of financial statements states that the user of financial statement can compare the financial statements of an entity with another organisation’s financial statements to analyse and evaluate their performance and financial position and to identify trends in an entity’s performance with reasonable convenience. Additionally, comparability is the quality of financial statement that enables any person to compare financial statement with other financial statements of the same organisation or financial statements of other organisations in a similar industry (Accounting-world.com 2015). Furthermore, “comparability requires that figures are…show more content…
In addition, the objective of the financial statement user is to find and interpret this data in order to have answers for questions regarding the organisation such as: Would an investment generate returns, or what is the degree of risk inherent in the investment (M. Fraser, Ormiston 1998). Additionally, an organisation’s financial conditions are the main concern to investors and creditors. Investors are simply the capital providers and they rely on an organisation’s financial conditions for both the safety and profitability of their investments. Moreover, investors must to know where their money was spent and where it is now. The financial statement of balance sheet reports that kind of issues by providing detailed information about an organisation’s asset investments. Furthermore, the balance sheet shows a business’s outstanding debt and equity components, and so debt and equity investors are able to better understand their relative positions in a company’s capital mix (Way
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