Comparability of Financial Statment

In: Business and Management

Submitted By naljabr
Words 1450
Pages 6
Introduction: Recently almost every corporation has investments in foreign country. Due to the quick growth in cross-country investments, the demand for internationally comparable financial information increased significantly. As a result we witnessed many countries that have adopted International Financial Reporting Standards (IFRS) in replace of their global General Accepted Accounting Principles (GAAP), or at least have permitted IFRS. European Union is one important example of twenty eight countries that adopted IFRS in 2005. European policy makers state that the reason for adopting one set of accounting standers is to “level the playing field” for investors in the European capital market by increasing the comparability of financial statements prepared by publicly traded companies across Europe (Cascino and Gassen, 2012). Similarly, The International Accounting Standard Board (IASB) declares that a single set of high quality accounting standards is intended to provide investors with comparable financial statements and thus help them make better decisions (Cascino and Gassen, 2012). Increasing comparability is the same reason that motivates the Securities and Exchange Commission (SEC) to support the convergence to a global set of accounting standards (Cascino and Gassen). Information comparability is “the quality of information that enables users to identify similarities in and differences between two sets of economic phenomena” (Yip and Young, 2012). There are two important part of information comparability: the similarity part which shows whether firms in similar industry report similar accounting amounts, and the difference part which shows whether firms in different industry report different accounting amount (Yip and Young). In other words, two firms have more comparable accounting if they report similar accounting amounts when they run similar…...

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