Comparability is also an importantaccounting principle. It requires that financial information must be comparable from one accounting period to another. But, this is possible only if the entity is using the same accounting policies from one period to another.

Ratio analysisis also possible and useful if thefinancial statementsare prepared by following the same accounting policies over the years. By this, we can easily compare the trend and performance of the entity.

One thing that should be kept in mind that the accounting policies should be in line with similar companies in the industry so that the comparability can be made between the company and the competitors.

Examples

Entities prepare their financial statements by presenting the last year figures as well in addition to the current year. This is to add the comparability principle to the financial statements.

DEF Company is using the double declining method ofdepreciationoverfixed assets. It should continue to use the same method in the coming years to follow. If it changes the method tostraight lineor other method, this will be a conflict with comparability principle of accounting.