Consistency of financial statement means that accounting policies, standards, pattern of estimates, presentation, disclosures, and other information presented in the financial statement are comparable with the last accounting period. In other words, there has been consistency in using accounting policies and other choices to create ease for financial statement users.
Example
If the company adopted the FIFO accounting policy in the last accounting period, it must be using the same. It’s important to note that although AVCO accounting policy is equally acceptable. However, the company must keep using the same accounting policy to be comparable and reliable until there is some genuine need to introduce change.
Use of consistency in the financial statement
Comparison– It’s easier to compare numbers/balances in the financial statement for analysis purposes.
Valid trend– The trend is only valid when policies are consistent and comparable.
Compliance – It’s a compliance and auditing requirement to be consistent when opting for accounting policies.
Transparency– It’s is the basis of transparency in the financial statement.
Wrap up
Consistency means that accounting policies, estimates, disclosures, presentations, and other information are comparable, and reliable decisions can be made based on comparison.
Daniyal is passionate about simplifying complex accounting concepts, Founded Accounting with Clarity to share practical insights, technical guidance, and real-world finance advice that empower professionals and business owners to make informed decisions with confidence.