Essay: Users of Accounting Information

Essay: Users of Accounting Information
07/06/2011 Comments Off on Essay: Users of Accounting Information Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

The qualitative characteristic of comparability entails that the information provided to stakeholders should be comparable with information of other companies. The users of accounting information can make decisions based on similarities and differences found in the financial statements of two or more companies. As an example suppose if a person wants to invest in a stock of a company, he would analyse previous and expected earnings of that company but if comparative information is available from another company he can make a much better decision on whether to invest in the same company or in another company related to the same industry. This is the reason why the Securities and Exchange Commission requires companies to present financial statements based on comparison with at least one previous year of performance (Porter and Norton 2009).

The biggest advantage of comparability is that users of accounting information can compare information of a certain company with peer companies in the same industry to evaluate the quality of earnings and position of that company as this would be quite difficult if a company is the solitary entity in an industry and enjoys monopoly. The comparability of accounting information is rendered useless if companies from different industries are compared with each other or companies from a similar industry are compared on different time periods. The comparability of accounting information is also irrelevant if there are some economical factors present only in a specific company such as super normal growth due to innovation in products or underperformance due to strikes and lockouts.

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