Question

Explain the qualitative characteristics of comparability and the importance of this characteristic from the users’ perspective. Explain how could the comparability characteristics of the financial information in support of mandatory financial reporting requirements been met?

Answer 1

Qualitative characteristics of comparability from financial statement user's perspective is the quality of information that is made available to user's of financial statement, based on which they can make decision of investing or selling there stakes in any organization. One important question is what is a quality element present in financial reporting. This could be understood as the assumptions used, consistency of accounting principles & methods, use of valuation methods, etc in preparation of financial statement.

Importance of this characteristic from the users’ perspective is enumerated below:

- Investors decide on basis of this information whether to invest in the company or not.

- Suppliers decide on basis of this information that on what credit terms goods should be suppiled to company.

- Bankers decide on basis of this information whether to give loan to the company or not.

- Clients decide on basis of this information whether to give company projects or not.

So, qualitative aspect of information is very imortant. Based on above discussion it is apparent that why qualitative characteristics of comparability is important from user's perspective

Comparability characteristics of the financial information in support of mandatory financial reporting requirements is being met by fundamental accounting assumption of consistency. This assumption is mandatory in preparation of any financial statement. Consistency means that accounting principles, accounting policies, depreciation method, inventory valuation methods, investment valuation methods, etc should be consistent from one accounting period to another accounting period to support comparability of information. So, this ensures comparable information available to users of financial statement.