CHAPTER ONE
INTRODUCTION
Servant factors point toward the importance of “comparability” of financial statement information across firms in financial analysis. According to the Securities and Exchange Commission (SEC) (2000), when investors judge the merits of investments and comparability of investment, efficient allocation of capital is facilitated and investor confidence nurtured. The usefulness of comparable financial statement is under cored in the financial accounting standard board (FASB) accounting concepts statement specially, the FASB (2000) states that “investing and lending decision essentially involve evaluations of alternative opportunities and they cannot be made rationally is comparative information is not available” (our emphasis).
Financial statement analysis text books almost invariable stress the importance of comparability across financial statements in judging a fir’s performance using financial ratios 2 for instance, Stickney and Weil (2006) conclude that “ratios, by themselves out of context, provide little information”. Despite the importance of comparability, a measure of financial statement comparability is not specified and there is little evidence on its benefits to financial statement users.
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