Consistency

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Businesses are encouraged to use the same accounting methods and principles consistently across consecutive accounting periods. This applies to methods for revenue recognition, expense recognition, depreciation, inventory valuation, and other accounting practices.

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Example: Several depreciation methods are used in accounting. If the company uses the straight-line method, it should use the same method in the next annual report to preserve the FSs' periodic comparability. If another depreciation method arises that will better represent the company's asset performance, such new method adoption must be applied consistently in the succeeding periods. The Consistency Principle does not prohibit changes in accounting policies but it sure does discourage it unless necessary.

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If a company decides to change its accounting methods or principles, it should disclose the nature of the change, the reasons for the change, and the financial impact of the change. This disclosure is typically included in the footnotes to the financial statements.