Definition:

The base year is the year in which a company adopts a particular accounting standard for the first time or changes its existing accounting standard to a new one. It is the year against which financial statements are compared to show changes over time.

Purpose:

• To provide a consistent basis for comparing financial statements across different companies and industries.
• To ensure that financial statements are prepared consistently and accurately.
• To provide a clear and transparent view of the company’s financial performance.

Examples:

• If a company adopts a new accounting standard for the first time in 2023, 2023 would be the base year.
• If a company changes its existing accounting standard to a new one in 2023, 2023 would also be the base year.

Key Considerations:

• The base year should be chosen carefully to ensure that the financial statements are comparable with previous years.
• The base year should be consistent with the company’s industry and size.
• The base year should be clearly disclosed in the financial statements.

Additional Notes:

• The base year is used for comparative purposes only and does not affect the financial statements themselves.
• The base year is not necessarily the same as the company’s fiscal year.
• Different accounting standards may have different base year requirements.