Comparability of Financial Statements

Comparison of financial statements forms the basis for much financial analysis. Four main types of comparison are made: (1) comparison of statements for the enterprise between successive years (2) comparison of a firm's statements with those of a specific competitor (3) comparison of a firm against an industry standard and (4) comparison with a target, such as a company's budget. Comparisons between different organizations may be difficult or even meaningless because of differences in (1) size of the organization (2) type of organization and (3) accounting methods used by the organization. Often, both the size and type of organization will dictate the kind of accounting methods used.