Question

Write a short note on :

Consistency concept

Answer 1

• The consistency concept suggests that while writing accounts or preparing financial statements, the same policies, procedures and methods should be followed every year.
• Accounts remain comparable only if consistency is maintained. If consistency is not maintained in accounting, the accounts may not remain comparable and can also mislead at times.
• In the consistency principle, personal bias can be avoided, the accountant has to follow consistently the same set of principles, practices, procedures or methods every year.
• For example, if stock is valued by FIFO method, the entity should follow the same method year after year as far as possible.
• In this way, if depreciation is provided by straight-line method in a year, the same method should be followed consistently every year.
• If the method of stock valuation or method of depreciation is changed every year, the accounts do not remain comparable and the profit or- loss position of different years may also indicate different.
• However, valuation of stock at cost or market price, whichever is less every year does not violate the principle of consistency.
• The logic behind the principle of consistency is that the users of financial statements lose confidence in the accounts if frequent changes are made in the policies or practices based on personal whims and fancy of those preparing the same.
• Consistency does not mean that the accounting policy or procedure can never be changed. When circumstances change or change in policy or procedure or method can present a better view of accounting information, the change can be made with appropriate reasoning. However, such changes should not be made frequently.