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This was due to varying reporting practices among multinational corporations. Research indicates that investors value similar accounting practices highly. This is due to legal and cultural differences, and sometimes the rules are not strictly applied. Nevertheless, IFRS aims to aid decision-making by ensuring financial reports are comparable. Comparability in accounting refers to the level of standardization of accounting information that allows financial statements of multiple organizations to be compared to each other.

1 Internal audit quality, internal control level and accounting comparability

By adhering to standardized accounting principles and guidelines, companies can ensure their financial statements provide a consistent and accurate basis for comparison, helping investors, creditors, and other users make informed decisions. Financial statements are more comparable when the same accounting policies and accounting standards are applied across multiple reporting periods, as well as across multiple entities within an industry. For example, if a number of oil and gas firms consistently apply the same industry-specific accounting standards to their financial statements, then there should be a high level of comparability within that industry.

Accounting Comparability

Qualitative characteristics of financial information, such as relevance and faithful representation, enhance comparability. Relevance ensures the information is useful for decision-making, while faithful representation ensures it accurately reflects economic phenomena. These characteristics contribute to the overall quality of financial reporting, aiding users in comparing financial statements across entities. A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards.

Company

Fixing comparability problems makes financial statements more believable. Research shows investors value $1 of extra EPS more in companies with high comparability. Specifically, turbotax teacher discount education discount they value it at $6.76 compared to $4.04 with low comparability. Better comparability, through auditors familiar with peers’ practices, can increase investor trust.

• The self-interest behavior of major shareholders can negatively impact economic transparency [76, 77], thereby potentially influencing the comparability of accounting information.
• If a transaction requires subjectivity, it must be dealt with in the same consistent manner every year.
• Accounting standard setters and regulators seek greater comparability in financial reporting.
• The results indicate that internal auditing can improve comparability.
• Qualitative characteristics of financial information, such as relevance and faithful representation, enhance comparability.

Why is comparability important for financial statement users?

In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements. In terms of controlling variables, we draw on the research conducted by Ege et al. (2020) [19]and Peng et al. (2023) [55]. The fundamental-level variables include company size (Size), solvency (Lev), years of establishment (FirmAge), profitability (ROA), board of directors (Board), and cash flow (Cashflow). On the governance level, we control for the balance of equity (Balance) and concentration of equity (Herfindahl). At the market level, we include Tobin Q and price-to-earnings ratio (EPS) as control variables. Additionally, annual effects (YEAR) and industry effects (IND) are controlled.

Financial statements presented in different currencies can’t be compared at face value. They must be converted into the same currency in order to be compared meaningfully. Get the free daily newsletter with financial industry insights and practical advice for CFOs.

Comparability is the quality that enables users to identify and understand similarities and differences between financial information across different entities or time periods. It helps ensure that financial statements can be effectively evaluated against one another, aiding in informed decision-making and improving the overall usefulness of financial reports. In the world of finance, accounting comparability measures are very important.

Cross-sectional analysis compares a company’s performance with its peers. Today’s choices and trust in investing hinge on clear financial information. Research from the last 20 years shows how much accounting standards affect investment views.