Consistency principle
The consistency principle requires a business to apply the same accounting policies from one period to the next, keeping financial statements comparable over time, unless a change is justified and disclosed.
See it move
A comparison holds the same physical year-end inventory under two costing methods. Valued under FIFO, it comes to €54,000; valued under weighted average, exactly the same stock comes to €51,500, a €2,500 difference driven purely by the accounting policy chosen. The consistency principle requires a business to keep using the same method period after period, so any switch is justified and disclosed rather than made silently.
Check yourself
A company owns equipment costing €200,000 with no residual value and a five-year straight-line useful life, giving an annual depreciation charge of €40,000. In year 2, without disclosing any change in accounting policy, it switches to the reducing-balance method at 20% of opening net book value, which was €160,000 at the start of year 2. By how much does this undisclosed switch increase year 2 reported profit compared with continuing straight-line depreciation, and does it comply with the consistency principle?