Comparative statements

Comparative statements
See also
Conservatism principle Accounting Convention Accounting estimate Economic value of equity Materiality principle Current portion of long-term debt Payables turnover Accounting process Opening balance sheet

Comparative statement is a kind of financial document of the company, created to compares a particular financial statement with prior period. It contains various financial factors of the company for two or more periods, thanks to which it is possible to make a comparative analysis of individual periods of time (at least two time periods). These are substantial implements for long-distance financial analysis. It should be placed side by side to facilitate comparison . Compared data gives a real financial situation of the enterprise and it's helpful to make a business decision for the decision-makers in the company.

Meaning for the company

Comparative statement is very useful in the case of Balance Sheet, profit and loss account and income statement. It's made to show:

• Financial data, as money values,
• Level of increase and decrease financial absolute data,
• Percentage condition in absolute data.

These documents are very serviceable for the person responsible for the financial analysis of the company due to the fact that they present at least two periods of time, thanks to which it is possible to analyse profits and losses. It gives the possibility of a reasonable planning of the company's revenues and expenses.

Risk

Comparative statement is not always reliable, because there are situations when accounting reports are incorrect. In a comparative statement, the most important factors that must be done correctly to make a document reflect reality are administrative expenses, fixed and current assets, long and short term funds. Also those factors needs to be similar each time, otherwise statement will be defective .

Usefulness

Comparative statement is very useful in the enterprise, it provides information that allows to:

• progress or regression of the company's financial situation, note the difference between two statements; business owners can speculate why the difference occurred
• allows to assess the validity of decisions made in previous financial periods,
• it opens up opportunities for more effective decision making and financial management of the company,
• it is also useful for further investors of the company that they can see company's financial result, can give concept, an illustrative picture of the company's operating costs and sales.

Comparative interim financial statements

IAS 34 declares approval for the idea of comparative reporting, which is admitted as more practical and useful than is the demonstration of information about only an individual period. Nevertheless, IAS 34 authorizes not only comparative provisional declarations of comprehensive profit. In that case a provisional declaration of comprehensive profit would perfectly be consisted of four columns of data. In another way in the event of the remaining parts of provisional financial declaration, the demonstration of two columns of data would come across the demands of IAS 34. Therefore, the other parts of the provisional financial statement shall demonstrate the following data for the two periods:

• the declaration of financial position as of the end of the present provisional period and a comparative declaration of financial position as of the end of instantly preceding fiscal year
• the declaration of cash flows incrementally for the present financial year to date, with a comparative declaration for a comparable year-to-date period of the Instantly preceding financial year, and
• IAS 34 demands that the declaration which shows changes in equity incrementally for the present financial year to date be depicted with a comparative declaration for a comparable year-to-date period of the Instantly preceding financial year .

References

• Brigham E., Ehrhardt M. (2008) Financial Management: Theory and Practice, Thomson South Western
• Goel D.K. (2016) APC Twenty Sample Papers in Accountancy , Arya Publications
• PKF International Ltd (2015) Wiley IFRS 2015: Interpretation and Application of International Financial Reporting Standards, Great Britain by TJ International Ltd Cornwall

Author: Wioleta Kozioł