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CMA Intermediate · Financial Accounting · Introduction to Accounting Standards (GAAP, AS and Convergence to Ind AS)

Sharma Textiles Ltd has valued its stock using the same method for years. A more relevant and reliable method now exists, but the finance head says changing would hurt comparability with earlier years. Under the ICAI Framework, the correct view is:

Comparability is not the same as mere uniformity. The Framework says it is inappropriate for an enterprise to leave its accounting policies unchanged when more relevant and reliable alternatives exist, so Sharma Textiles should not keep its old method merely for comparability.

  1. AComparability requires uniformity, so the method must never change
  2. BThe enterprise should keep the old method as long as it was once acceptable
  3. CComparability should not be confused with mere uniformity, and policies should not be left unchanged when more relevant and reliable alternatives existCorrect
  4. DPolicy changes are barred unless a new Standard is issued

Explanation

The Framework states that the need for comparability should not be confused with mere uniformity and should not impede improved standards. It is inappropriate to leave accounting policies unchanged when more relevant and reliable alternatives exist. So the finance head's argument is wrong.

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