Question

Comparability and consistency are two terms used to describe information about different companies and information about different periods in the same company that are prepared and presented in a similar manner. What is the correct pairing of terms with the comparison that is made?

Answer 1

Comparability : Inter company comparison , Consistency : Company time series comparison.

Step-by-step explanation:

Consistency is quality of accounting information, enabling the same company's financial performance comparison over different periods of time. Consistency needs stable accounting methods used for a considerable period of time, unless their changing is necessary.

Eg : Using whichever method straight line or written down value - to calculate depreciation, should not be changed unless necessary.

Comparability is the quality of accounting information, enabling the company's financial performance comparison with other companies. It needs accounting methods following generally accepted accounting principles.

Eg: Accrual basis of accounting is generally standardised, acceptable and using other i.e cash basis won't enable company's comparison with others.

Consistency and comparability are very crucial to analyse company's financial performance - growth with time, growth as per industry standards respectively.