Consistency Principle
Using the same accounting methods from period to period for comparability.
Definition
The consistency principle requires using the same accounting methods and procedures from one period to the next. If you use FIFO inventory valuation this year, use FIFO next year. If you depreciate equipment over 10 years, continue that policy for similar equipment.
Changes in accounting methods are allowed but must be disclosed and justified. The goal is comparability: users can compare financial statements across periods without worrying that differences are due to changed accounting rather than actual business changes.
Why It Matters
Consistency enables meaningful trend analysis. If accounting methods change frequently, year-over-year comparisons become meaningless—you can't tell if profit increased due to better performance or different accounting.
When changes are necessary (new accounting standards, changed business circumstances), companies must disclose the change, explain why, and quantify the impact. This allows users to adjust for the accounting change.
Examples
- 1
Use straight-line depreciation consistently—don't switch to accelerated depreciation to manipulate earnings.
- 2
Consistently expense R&D costs—don't capitalize some projects and expense others without clear policy.
- 3
Change from FIFO to weighted-average inventory—disclose change, explain reason, show financial impact.
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