Concept of Consistency
The convention of consistency means accounting practices once adopted must be applied consistently in the future. An accurate presentation and comparison of the monetary position of an enterprise over a period of your time can only be made if the accounting policies so followed are consistent over the years.
But the concept of consistency doesn’t mean the business cannot change to a far better method or presentation, the methods can be changed according to the requirements of the business but the fact of such changes must be disclosed with reason in the financial statements.
Examples of Consistency Concept
Mr. Y is a garment retail trader. He uses the Last-in-first-out method of inventory valuation in respect of stock at Retail outlet A and the First-in-first-out inventory valuation method in respect of stock at Retail outlet B. In such a situation, if there is no valid reason for the different treatment of the same stock located at different retail outlets, Mr. Y has got to use anybody of the valuation methods consistently for all stock.
Company X has been using the Written down method for charging depreciation on Furniture. By applying the consistency concept the corporate shall still use Written down method of depreciation in respect of Furniture in the following
In case company X wants to modify to another method of charging depreciation, say line method, it must mention in its financial report, the reason for such change, the nature of the change and the effect of such change, and other similar items.
According to The American Institute of Certified Public Accountants “Principles of Accounting are the overall law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”
After going through this lesson, you will be ready to understand the ‘Basic Accounting Terms’ that we commonly use in Accountancy.
After browsing this lesson, you shall be ready to understand the subsequent Fundamental Accounting Assumptions: Going Concern, Consistency, Accrual