You need a set method in place internally or to rely on an accounting firm who follows consistent policies and procedures in order to ensure GAAP is followed. When you have several different people recording data, compiling reports, and performing other financial documentation, the Consistency Principle is seldom followed. However, the disconnect is most likely to happen in two scenarios: High Turnover or Relying on Different Bookkeepers In theory, maintaining consistent accounting and bookkeeping methods shouldn’t be a problem. When there is no set way of reporting and recording the information, you may miss these.

As a business owner, it is important to be able to track patterns and trends in your finances. Instead of trying to learn and train in different ways, you and your accounting team know one, consistent way to report data. In fact, often auditors refuse to provide an analysis if the Consistent Principle hasn’t been followed. It helps the auditors compare the financial statements and provides the basis for the reliability of financial statements. Consistency helps accountants record the accounting transactions and work with the accounts. Advantages of the Consistency PrincipleĪs a business owner, following the Consistency Principle offers several specific advantages: For auditors, it assists in comparing financial statements with the previous year.

For accountants, it provides a solid framework to record business transactions easily. The Consistency Principle is important from both the accounting and auditing perspectives. Regardless of the industry, consistency creates ease in the preparation of accounts.Īccounting policies and assumptions should be followed continuously from year to year in order for accountants and users of the financial statements to have clarity and avoid confusion. As consistency is one of the fundamental accounting assumptions unless there is documentation supporting a change, it is assumed that the accounting policies used last year are followed in the current year. The primary reason for the Consistency Principle is to make the financial statements comparable from period to period. The Importance of the Consistency Principle In the event of a change, be sure to fully document its effects and include the documentation in the notes that accompany the financial statements. Only when a principle or method has a new version that improves reported financial results should you change. Relying on a consistent accounting method ensures that statements and information will be comparable, and it will be easier to see trends and extract accurate information. Accounts payable/accounts receivable reports.This applies to the line items on your financial statements, including things like: Simply put, the Consistency Principle means that once your organization, or, more specifically, your bookkeeper or accounting department, adopts an accounting principle or method of documenting and reporting information, that method has to be used consistently moving forward. If you aren’t familiar with this principle and why it is important, in this article our CPAs break it down, explain the advantages of using it, give reasons for its importance, and provide some examples. One aspect auditors look for is the Consistency Principle in order to compare results from period to period. Many times, a lender or investor will want a client’s financial statements to be audited, showing the internal controls as well as whether generally accepted accounting principles (GAAP) have been used. An accurate view of your company’s numbers is critical for lenders and investors in determining whether your business is “worth the risk,” so to speak. When you need to borrow money, look for investors for expansion, or take your company public, your financial statements and accounting methods will be reviewed. Your financial statements are key to showing the state and solvency of your business.

Define cost principle