Q: What is comparability and consistency in accounting?
A quality of accounting information that facilitates the comparison of financial reporting of one company to the financial reporting of another company.
The characteristic of comparability of financial statements is important because it allows us to compare a set of financial statements with those of prior periods and those of other companies.
Consistency:
A quality of accounting information that facilitates comparing a company's reporting of one accounting period to another. For example, the reader of a company's financial statements can assume that the company is using the same inventory cost flow assumption this period as it used last period or last year. (If the company did change, it must be disclosed to the reader.)
Consistency concept is important because of the need for comparability, that is, it enables investors and other users of financial statements to easily and correctly compare the financial statements of a company.
Q: Distinguish between comparabilty and consistency.
Comparability is the the property that financial statements are prepared under uniform principles from one company to another or from one country to another. The consistency is the continual use of the same accounting policy with a change allowed only when justified.
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Financial
statements of one accounting period must be comparable to another in
order for the users to derive meaningful conclusions about the trends in
an entity's financial performance and position over time. Comparability
of financial statements over different accounting periods can be
ensured by the application of similar accountancy policies over a period
of time.
A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
Comparablity:A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
Example:
If a company that retails leather jackets valued its inventory on the basis of FIFO method in the past, it must continue to do so in the future to preserve consistency in the reported inventory balance. A switch from FIFO to LIFO basis of inventory valuation may cause a shift in the value of inventory between the accounting periods largely due to seasonal fluctuations in price.- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
A quality of accounting information that facilitates the comparison of financial reporting of one company to the financial reporting of another company.
The characteristic of comparability of financial statements is important because it allows us to compare a set of financial statements with those of prior periods and those of other companies.
Consistency:
A quality of accounting information that facilitates comparing a company's reporting of one accounting period to another. For example, the reader of a company's financial statements can assume that the company is using the same inventory cost flow assumption this period as it used last period or last year. (If the company did change, it must be disclosed to the reader.)
Consistency concept is important because of the need for comparability, that is, it enables investors and other users of financial statements to easily and correctly compare the financial statements of a company.
Q: Distinguish between comparabilty and consistency.
Comparability is the the property that financial statements are prepared under uniform principles from one company to another or from one country to another. The consistency is the continual use of the same accounting policy with a change allowed only when justified.
Financial
statements of one accounting period must be comparable to another in
order for the users to derive meaningful conclusions about the trends in
an entity's financial performance and position over time. Comparability
of financial statements over different accounting periods can be
ensured by the application of similar accountancy policies over a period
of time.
A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
Example:
If a company that retails leather jackets valued its inventory on the basis of FIFO method in the past, it must continue to do so in the future to preserve consistency in the reported inventory balance. A switch from FIFO to LIFO basis of inventory valuation may cause a shift in the value of inventory between the accounting periods largely due to seasonal fluctuations in price.- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
Financial
statements of one accounting period must be comparable to another in
order for the users to derive meaningful conclusions about the trends in
an entity's financial performance and position over time. Comparability
of financial statements over different accounting periods can be
ensured by the application of similar accountancy policies over a period
of time.
A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.
Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.
Example:
If a company that retails leather jackets valued its inventory on the basis of FIFO method in the past, it must continue to do so in the future to preserve consistency in the reported inventory balance. A switch from FIFO to LIFO basis of inventory valuation may cause a shift in the value of inventory between the accounting periods largely due to seasonal fluctuations in price.- See more at: http://accounting-simplified.com/financial-accounting/accounting-concepts-and-principles/comparability.html#sthash.M0bZqWyR.dpuf
This is very helpful
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