Consistency Principle

Accounting often allows choices, such as how to value inventory or how quickly to depreciate equipment. If a company changed methods every year, its results could rise or fall simply because of the method used, not because of any real change in the business.

For example, if a company switched its depreciation method in a way that halved its annual depreciation charge, its profit would jump even though nothing about the business had improved. The consistency principle prevents this kind of distortion.

Consistency does not mean methods can never change. A company may change if a new method gives a more accurate picture or if accounting standards require it. When it does, it must disclose the change, explain why and show its effect, often by restating the figures for earlier periods so they remain comparable.

For readers of financial statements, consistency means trends can be trusted. Growth in revenue or profit over several years reflects the business itself rather than changes in how the numbers were calculated.