principle of ‘consistency
Show how you would ensure the principle of ‘consistency’’ is complied with during and after the preparation of Financial statements?
The consistency principle states that, once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods. Only change an accounting principle or method if the new version in some way improves reported financial results. if such a change is made, fully document its effects and include this documentation in the notes accompanying the financial statements.
The objective of the consistency standard is to ensure that if comparability of financial statements between periods has been materially affected by changes in accounting principles, there will be appropriate reporting by the independent auditor regarding such changes.
When doing your accounting, there are a number of different methods or principles that accountants can use. These principles are laid out for businesses to comply with when reporting their financial activity.
The sole purpose of the consistency principle, or consistency concept, is to ensure that transactions or events are recorded in the same way, from one accounting year to the next.
When talking about different accounting methods, this can include anything from cash vs accrual accounting, and using LIFO vs FIFO methods.
In other words, businesses should not use a certain accounting method one year, and a different accounting method the next year. This however does not mean that business are required to stick with the same accounting method forever, they are allowed to change their method, but this change will need to be accounted for.
In cases where you might need to change the accounting method or principles that you use in your business for a valid reason, then the effects of this change need to be clearly disclosed in your company’s financial statements.
Accountants are encouraged to use a consistent accounting method from year to year in order to prevent manipulation of financial statements, and so that the business reports are accurate and depict comparable information.
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