Different Accounting Policies Invalidate Ratio Comparisons

Steps:

• Identify the goal: Meaningful ratio comparisons require consistent financial data preparation.
• Recall that accounting ratios (e.g., profit margin = net profit / revenue) derive from financial statements.
• Note that inconsistencies in how data is recorded or valued distort these statements.
• Determine the core issue: Variations in underlying methods prevent apples-to-apples analysis.

Why C is correct:

• Accounting policies (e.g., depreciation method or inventory valuation like FIFO vs. LIFO) directly alter financial statement figures, making ratios non-comparable per accounting standards like IFRS or GAAP.

Why the others are wrong:

• A: Suppliers affect costs but not the consistency of ratio calculations if policies match.
• B: Selling prices influence revenue but allow valid ratio comparisons if accounting is uniform.
• D: Ledger presentation is a formatting difference; ratios use summarized financials, not raw ledgers.

Final answer: C