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51016 Montecatini Terme (PT) - Via G. Garibaldi, 2/D
Tel.: 0572 773505

International Comparability Definition

comparability accounting definition

Timeliness matters for accounting information because it competes with other information. For example, if a company issues its financial statements a year after its accounting period, users of financial statements would find it difficult to determine how well the company is doing in the present.

Recent literature, particularly that following De Franco et al.’s influential study, has focused on utilizing the output of the financial reporting process to measure accounting comparability. In this paper, we conduct an early survey of studies using output-based measures of comparability. First, we describe and comment on four important measurement concepts as well as the studies that introduced them.

SIC-27 — Evaluating the Substance of Transactions in the Legal Form of a Lease

Investors and issuers may find our discussion useful to understand the role of accounting comparability in financial markets. Our work can also help accounting regulators in the standard setting process and in the post-implementation review of their policies. The rule change for segment reporting in 1998 has arguably made segment reporting more relevant through the adoption of the management approach. Meanwhile, the management approach has resulted in a decrease in the comparability of segment income.

Comparability can play a substitutive or complementary role in the capital markets depending on the interplay between comparability of accounting information and a firm’s investor sophistication or information asymmetry among investors. On the one hand, sophisticated users of financial statements, such as institutional investors, demand high-quality firm disclosures, “leveling the playing field” among investors . Moreover, these investors typically have access to alternative information sources including electronic newswire services which allow more effective dissemination of firm-specific information (Drake et al., 2014, Kothari et al., 2009). Thus, the substitutive role of comparability predicts that comparability is less likely to add incremental value to the understanding of earnings information when investor sophistication is high. Holthausen and Verrecchia argue that the precision of pre-disclosure information signals decreases the informativeness of subsequent firm disclosure, suggesting the substitutive relation among sequential information events. Prior studies also show that earnings announcements are less informative when the quality of pre-disclosure information environments is high (El-Gazzar, 1998, Shores, 1990). We focus on information asymmetry between informed and uninformed investors to quantify the quality of pre-disclosure information environments because investors’ incentive to acquire private information is lower when public information is of higher quality .

Annual improvements — 2008-2010 cycle

In some cases, however, the FASB may conclude that the best interests of its own capital markets outweigh the goal of completely converged accounting standards. If so, they’re not looking at only two companies’ financial statements and converting their reported measures to the same basis, such as getting them both on FIFO or LIFO, so they can compare them against each other. Instead, they’re actually comparing, for example, the market value of the target company’s stock with their estimate of its intrinsic value. Comparability refers to the ability to identify similarities and differences in financials.

comparability accounting definition

For example, a company experiencing a strong quarter and presenting these improved results to creditors is relevant to the creditors’ decision-making process to extend or enlarge credit available to the company. Changes to accounting policy must be accounted for retrospectively, i.e. amounts recognized in previous accounting periods are restated to account for the change in accounting policy. A quality of accounting information comparability accounting definition that facilitates the comparison of financial reporting of one company to the financial reporting of another company. The presentation of liabilities is different in both years, which is not appropriate as it does not ensure comparability of financial reports/statements. You wouldn’t be able to compare two companies’ financial information withratio analysisbecause their financial information wouldn’t be compatible.

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