Blank
______ financial statements provide for comparison of firms that differ in currency type.

Question

BlackTom AI · Accepted Answer

Standardized financial statements provide a common basis (unit of measure and size relationship) so firms reporting in different currencies can be meaningfully compared.

1. Relevant knowledge points and concepts
- Financial comparability requires a common unit of measure and a common basis for scale. 
- Standardized (or common‑size) statements express each line item as a percentage of a base (e.g., sales for the income statement, total assets for the balance sheet) and are often prepared after converting amounts into a single currency. 
- “Original” statements are reported in the firm’s reporting currency. “Restated” statements adjust prior periods for accounting changes or error corrections. “Compressed” is not a standard comparability technique.

2. Step-by-step reasoning
- Goal: compare firms that report using different currencies. 
- Step 1: Convert each firm’s reported amounts into a common currency using an appropriate exchange rate. 
- Step 2: Express converted amounts on a standardized basis (for example, as percentages of revenue or total assets) so size differences are normalized. 
- These two actions eliminate currency denomination and scale differences, enabling direct comparison.

3. Illustrative calculation (intermediate steps)
- Company A reports revenue = $1,200 (USD). Company B reports revenue = €1,000 (EUR). Exchange rate: 1 EUR = 1.10 USD.
- Convert B to USD: €1,000 × 1.10 = $1,100.
- Create common‑size income statement: if each company’s cost of goods sold (COGS) is Company A: $720 and Company B: €660 → converted COGS = €660 × 1.10 = $726.
- Express COGS as % of revenue: A: $720 / $1,200 = 60%; B: $726 / $1,100 = 66%.

4. Why the correct answer is correct
- The term “Standardized” explicitly refers to preparing statements on a common basis (currency and scale), which is precisely what’s required to compare firms with different currency types.

5. Why the other options are incorrect
- Original: kept in each firm’s native currency and scale—does not allow cross‑currency comparison. 
- Compressed: not a recognized method for inter‑company currency comparability. 
- Restated: used to adjust for accounting method changes or errors, not primarily for converting currencies between firms.

6. Conclusion
- Standardized is the correct choice, matching the provided answer: Standardized.

Blank ______ financial statements provide for comparison of firms that differ in currency type.单项选择题

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