Which of the following is/are characteristics of "comparability"?
A)Users must be able to compare the financial reports of an entity with the financial reports of a shareholder.
B)Users must be able to compare the current financial reports with prior period financial reports of an entity.
C)Users must be able to compare the financial reports of an entity with the financial reports of another entity
D)All of the given answers.
E)Users must be able to compare the current financial reports with prior period financial reports of an entity and users must be able to compare the financial reports of an entity with the financial reports of another entity.

Question

Quizplus · Accepted Answer

Comparability is a fundamental qualitative characteristic of financial information according to accounting principles such as the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). It allows users to identify and understand similarities and differences among items. Specifically, comparability refers to the ability of users to compare financial information:
1. Across time periods: Users must be able to compare the current financial reports with prior period financial reports of an entity. This helps in assessing trends and evaluating the performance of the entity over time.
2. Across entities: Users must be able to compare the financial reports of an entity with the financial reports of another entity. This is crucial for making economic decisions, such as when choosing between potential investments in different companies.
The first option, which suggests that users must be able to compare the financial reports of an entity with the financial reports of a shareholder, is not a characteristic of comparability in the context of financial reporting. Shareholders are owners of the entity, and their personal financial reports are not directly comparable to the financial reports of the entity in which they hold shares.
Therefore, the correct answer is:
5. Users must be able to compare the current financial reports with prior period financial reports of an entity and users must be able to compare the financial reports of an entity with the financial reports of another entity.
This option encompasses the two key aspects of comparability in financial reporting: inter-temporal comparison (comparing an entity's financial information over different time periods) and inter-entity comparison (comparing financial information between different entities).

Which of the Following Is/are Characteristics of "Comparability