What is the Consistency Principle?

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.

Auditors are especially concerned that their clients follow the consistency principle, so that the results reported from period to period are comparable. This means that some audit activities will include discussions of consistency issues with the management team. An auditor may refuse to provide an opinion on a client's financial statements if there are clear and unwarranted violations of the principle.

The consistency principle is most frequently ignored when the managers of a business are trying to report more revenue or profits than would be allowed through a strict interpretation of the accounting standards. A telling indicator of such a situation is when the underlying company operational activity levels do not change, but profits suddenly increase.

Advantages of the Consistency Principle

It is essential for a reporting entity to follow the consistency principle, since it allows you to compare reported information from period to period. This makes it easier to spot trends over extended periods of time, which may lead to actionable information that can improve business outcomes.