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15.2 COMPARABILITY REQUIREMENTS True comparability needs to meet three criteria: consistency, verification, and unit measurement. Each is discussed in this section.

Consistency

Three equally important elements of consistency should be considered as follows.

Time Periods

Time periods should be consistent. For example, a 10-month period should not be compared to a 12-month period. Instead, the 10-month period should be annualized, as described within this chapter.

Consistent Methodology

The same methods should be used across time periods. For example, the chapter about inventory discusses the use of two inventory methods: first-in, first-out (FIFO) versus last-in, first-out (LIFO). The same inventory method—one or the other—should always be used consistently for both the beginning of the year and the end of the year.

Inflation Factors

Finally, if multiple years are being compared, should inflation be taken into account? The proper application of an inflation factor is also described within this chapter.

Verification

Basically, can these data be verified? Is it reasonable? If an objective, qualified person reviewed the data, would he or she arrive at the same conclusion and/or results? You may have to do a few tests to determine if the data can in fact be verified. If so, you should retain your back-up data, because it is the evidence that supports your conclusions about verification.

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Monetary Unit Measurement

With regard to comparative data, we should ask: “Is all the information being prepared or under review measured by the same monetary unit?” In the United States, we would expect all the data to be expressed in dollars and not in some other currency such as euros (used in much of Europe) or pounds (used in Britain and the United Kingdom). Most of the manager’s data will automatically meet this requirement. However, currency conversions are an important part of reporting financial results for companies that have global operations, and consistency in applying such conversions can be a significant factor in expressing financial results.