international accounting standards can have more than one valid interpretation how does ths affect comparabili

Question

If principles based international accounting standards can have more than one valid interpretation, how does this affect comparability?

Answer 1

Comparability is achieved when there is uniformity in the financial reports of different companies (escpecially from the same industry) which enables a user to form an opinion based solely on those reports without further calculations or information.

Principles-based standards do lead to more than one valid interpretation and lead to a decreased comparability superficially. For example, different depreciation methods and revaluation methods could be argued to make the assets value of a company irrelevant when compared to another company because both values have been worked out differently.

However, principles-based standards are based on an intrinsic accounting principle, and if applied correctly and appropriately by firms could increase comparability at a more deeper/intrinsic level.

Let's say there are two companies which use the same depreciation methods and therefore we could assume that their asset values are comparable. It turns out that one company is understating its depreciation expense and the profit figure is subsequently overstated. In this case the both the profit figures and the assets figures for both companies are not comparable because they are not both true and fair -- one of them has been overstated.

That's my understanding of comparability and principles-based standards. Hope it helps.

Answer 2

more than 1

Answer 3

The differences can be material. For that reason, it is important to disclose the basis of accounting used to present financial information. An accounting firm, for example, will issue an opion on a company's (seeking a US GAAP opinion) financial statement which includes a qualification that the information presented was prepared on a basis other than US GAAP - but will go not further to explain these differences. To do so, would allow the company to "restate" the company's financial statements into US GAAP - thus making a qualified opinion irrelevant.

Answer 4

An important implication of comparability is that users are informed of the accounting policies employed, any changes in those policies and the effect of such changes. The person who is comparing usually has a same point of view for the things he/she is comparing. Therefore he/she will have the same interpretation. I hope that helped you a little bit.

Answer 5

Wealth is compelling, and can be spent rapidly during a short living. Lawyers take note.

Answer 6

That's a tough question. Are you an accountant? I want to hear from you. Add me or email me. We can chat my id is [e-mail]