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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Sharma Foods Ltd. changes the presentation of its comparative figures each year without any disclosure, making year-to-year comparison difficult for investors. Which qualitative characteristic of financial statements is most directly compromised?

Comparability is compromised. Users must be able to compare an entity's financial statements across periods to identify trends, and undisclosed, arbitrary changes in presentation of comparatives defeat that purpose, even if individual figures remain reliable and relevant.

  1. AComparabilityCorrect
  2. BUnderstandability
  3. CReliability
  4. DRelevance

Explanation

Comparability requires users to compare financial statements over time to identify trends and to compare different entities. Arbitrary, undisclosed changes in presentation prevent this. Understandability concerns clarity to informed users, and the scenario focuses on cross-period comparison.

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