ACCA Applied Knowledge · Financial Accounting · Key principles and concepts of accounting
A company discloses in its financial statements a change in the method of valuing inventory, showing the effect on prior-year figures so that users can compare results across both years. Which enhancing qualitative characteristic of useful financial information is this primarily intended to serve?
The answer is comparability. Disclosing the effect of a changed inventory valuation method on prior-year figures lets users compare results between periods and see the differences clearly, which is exactly what the comparability characteristic is meant to achieve.
- AComparabilityCorrect
- BVerifiability
- CTimeliness
- DUnderstandability
Explanation
Comparability enables users to identify similarities and differences between items, across periods and between entities. Restating or disclosing the effect of a policy change supports comparison across years. Verifiability concerns whether independent observers would reach consensus on the depiction, which is not the aim here.
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