Consistency Concept                     

The concept of consistency requires a business enterprise to follow consistent accounting procedures and practices from time to time. Steady application of practices and procedures enables a comparative study of the performance of the business over a period of time and also an objective comparison of various enterprises within the industry. The comparison of a business performance over a period of time is called trend analysis, and the comparison of different enterprises belonging to the same industry is called cross sectional analysis. Consistency in application of the procedures and methods eliminates personal bias and subjective judgment.

There are alternative accounting methods for a given item or event. The consistency concept requires that once an entity has decided on one method, it will treat all the subsequent events of the same character in the same fashion unless it has a sound reason to change the method of treatment of that event. For example, if a concern is valuing its inventory by a particular method in one year, it is expected to value its inventory in the subsequent years also in the same method unless there are strong reasons to change the same. Similarly, if an enterprise charges depreciation by the Written Down method, it is expected to follow the same method in the subsequent years also. However, where the change in the method of accounting is required by law or for better presentation of financial statements, a change of procedure may be justified. However, adequate disclosure of the fact of change, reason and affect of the change shall be made in the financial statements so that its impact can be perceived by the users.

Accounting as a 'language of the business' aims to communicate financial information about a business enterprise to management and the external users. Therefore, it is necessary and imperative that the financial statements and the data, which form the basis for the preparation of financial statements, must be honestly in conformity with the Generally Accepted Accounting Principles (GAAP).