ACCA Applied Knowledge · Financial Accounting · The regulatory framework
A listed company's directors may be tempted to apply different accounting treatments from those used by similar companies. Which benefit of regulation addresses this concern?
It improves comparability between entities and over time. When standards require similar transactions to be accounted for in the same way, users can compare one company with another and with prior periods. Regulation does not cut tax, lift share prices or remove disclosure notes.
- AIt lowers the company's tax liability
- BIt increases the company's share price
- CIt improves comparability between entities and over timeCorrect
- DIt removes the need for notes to the accounts
Explanation
Mandatory standards require similar transactions to be treated consistently, so users can compare entities and periods. Regulation does not guarantee a lower tax bill or a higher share price, and notes are in fact required by standards.
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