Preliminary Arrangements

Date: 2015-10-07; view: 460.

Regardless of the purpose for which an analysis is made, certain preliminary steps must be taken to arrange the data in suitable form. They include the following tasks:

1. Selecting and collecting relevant standards for evaluating an analysis.

2. Rounding off amounts, e.g., to the nearest hundreds or thousands of dollars.

3. Reclassifying accounts, especially if comparative statements over a period of time are used, so that a uniform classification will be used in all analyses.

4. In some instances, segregating and grouping accounts according to different classification systems.

5. Selecting, computing, and interpreting various statistical measures, economic indicators, ratios, comparisons, and relationships which reveal significant information.

Standards for Comparison. There is limited significance to any analy­sis which does not provide a basis for determining whether the informa­tion developed by the analysis is favorable or unfavorable. If compara­tive data are not available or cannot be developed, other analyses should be made for which comparative data will be available.

For every analysis, there should be some type of standard against which the resulting information may be compared. These standards may be:

1. Informal—sometimes only a "feeling" on the part of the reader of the analyzed data.

2. Past results against which current results may be compared.

3. Results of other companies in the same industry (there are a number of limitations to this type of standard, because companies are seldom entirely comparable).

4. Budgeted or planned standards reflecting the stated objectives of management before the period was started.