Consistency principle

Consistency principle
Primary topic
Related topics
Methods and techniques

Consistency principle is one of the main accounting principles. The basic assumption of this rule is the application of the same methods, standards and practices in the company's accounting, both in a given financial period and the period following to it. In this way, it is possible to compare reports in subsequent accounting periods[1]. The same procedures used by accountants are aimed at preventing the occurrence of non-compliance. In the case of modifications of financial methods, employees who keep accounting books are obliged to present them. The consistency principle is intended to prevent a situation where the management of the company could falsify financial information in order to maintain general opinions about the goodness of the financial statements[2]. Reports of companies applying the consistency principle are commonly recognized are credible and accurate. In the The Financial Accounting Standards Board’s opinion, the principle is one of the most important features of effective accounting information[3]

Definition by Cambridge Business English Dictionary[edit]

The term is described in the dictionary as one of the main principles functioning in accounting. Its meaning includes the use of the same billing procedures in both this year and the previous year. According to this idea, a company applying the principle of cohesion should reach for the same accounting methods in similar cases in the future.

Advantages of consistency principle[edit]

The consistency principle is essential for the functioning of the accounting in the enterprise[4].

During the financial audit in enterprises, the auditors are interested in financial reports and keeping to the consistency principle by the company's management.

  • Management

The application of the same accounting procedures facilitates the work of people responsible for accounting books in the company, and also improves the entire process of company management[5].

  • Costs

Employees are trained only at the beginning to familiarize themselves with new accounting methods, which reduces overall costs for the company.

  • Comparison

With the help of the consistency principle, it is possible to keep accounting books in a similar manner in different financial periods. This makes it easier to compare results over time.

Footnotes[edit]

  1. Levine P., Pearlman J., Yang B. (2011), Imperfect Information, Optimal Monetary Policy and the Informational Consistency Principle, University of Surrey
  2. Ncert (2016), Theory Base of Accounting, Ncert
  3. Aicpa (2018), Consistency of Financial Statements, Aicpa
  4. Goyal V.K. (2007), Financial Accounting, Excel Books India
  5. Riahi-Belkaoui A. (2004), Accounting Theory, Cengage Learning EMEA

References[edit]

Author: Patryk Schmidt