What is the consistency principle?

Definition of Consistency

In accounting, consistency requires that a company's financial statements follow the same accounting principles, methods, practices and procedures from one accounting period to the next. This allows the readers of the financial statements to make meaningful comparisons between years.

Consistency does allow a company to make a change to a more preferred accounting method. However, the change and its effects must be clearly disclosed for the benefit of the readers of the financial statements.

The Financial Accounting Standards Board refers to consistency as one of the characteristics or qualities that makes accounting information useful.

Example of Consistency

Let's assume that a U.S. corporation uses the FIFO cost flow assumption for valuing its inventory and determining its cost of goods sold. Due to the increasing cost of its materials, it concludes that LIFO will better indicate the company's true profit. In the year of the change from FIFO to LIFO (and in years when comparisons are presented), the company must disclose the break in consistency.