One qualitative characteristic that underlies financial accounting is comparability. As you will recall, comparability refers to similarities of financial information between different companies, and consistency of the financial information produced by a company over time. Two of the many ways of achieving comparability are by limiting the number of different ways transactions may be recorded, and by specifying how assets, liabilities, equities, revenues, and expenses will be disclosed in the financial statements.
One argument against comparability is that it limits companies' ability to choose among accounting methods, and thus may result in disclosures that may not be agreeable to management or best suited to the particular circumstances.
Required:
Discuss the pros and cons of comparability, with reference to the analysis of financial statements.