Consistency in Accounting Policies and Financial Statement Comparability

Abstract

This research introduces a novel, cross-disciplinary methodology for quantifying the impact of accounting policy consistency on financial statement comparability, a long-standing
but qualitatively assessed concept in accounting theory. Departing from traditional archival
or survey-based approaches, we develop a computational linguistics and network analysis
framework to model the accounting policy ecosystem of firms. We conceptualize accounting policies not as isolated choices but as interconnected nodes within a firm-specific and
industry-wide semantic network. By parsing the accounting policy disclosures from a comprehensive dataset of 10-K filings from 1995 to 2004, we construct policy adjacency matrices
and measure inter-firm policy network similarity. Our primary innovation is the Policy Consistency and Comparability Index (PCCI), a multi-dimensional metric that captures the
stability of a firm’s policy network over time (consistency) and its topological alignment
with peer firms’ networks (comparability). Results from applying this framework to the
SP 500 constituent firms reveal a non-linear, threshold-based relationship between policy
consistency and market-based measures of information asymmetry, such as bid-ask spreads
and analyst forecast dispersion. We find that high levels of internally consistent policy application, when coupled with high external comparability, are associated with a significant
reduction in cost of capital estimates. Conversely, we identify a ’consistency trap’ where rigid
adherence to a unique, non-comparable set of policies can diminish informational value. This
study’s primary contribution is the formalization and computational operationalization of
policy consistency-comparability nexus, providing auditors, regulators, and investors with a
quantitative diagnostic tool. The findings challenge the implicit assumption that more consistency is invariably beneficial, highlighting instead the critical interplay between internal
coherence and external alignment in the financial reporting ecosystem.