Characteristics of Consistency

In this article we would discuss some important characteristics of Consistency. Consistency is a basic requirement for ensuring or achieving the comparability of financial statements. Consistency can be broadly divided into consistency of presentation and consistency in policies.

Important Characteristic of Consistency

Some important characteristics of consistency can be expressed in terms of comparability & understand ability, consistency in presentation, consistency in policies. These characteristic have been briefly explained below

1.   Consistency in presentation

Consistency principle requires that presentation of financial items should not change from one period to another period. Consistency of presentation primarily deals with structure & classification of financial items in the financial statement. 

Thus structure & classification of financial items in the financial statements should not change from period to period.

2.   Consistency in policies

Consistency principle also requires consistency in accounting policies. During the preparation of financial statement, accountant adopts different accounting policies for the preparation of financial statement. 

These policy includes deprecation policy, revenue recognition policy etc. Change in accounting policy is supposed to have impact on the financial item, thus the financial item are more comparable.

3.   Comparability & Understanding

Consistency is required for the purpose of comparison; it also improves the understanding of financial statements. If the consistency principle is not followed by the entity, then it would not be possible to compare & understand the financial statements. This has been explained with a simple example below

	2016	2015
Selling Expenses		10,000
Selling & Marketing	50,000	Nil
Marketing Expenses		20,000

                                           

In above example the structure & classification has been changed in 2016. of expenses. Now information presented in 2016 cannot be compared with the information presented in 2015. we can see that, there is a raise in expenditure, but one cannot tell that which head contribute how much in that raise.

4.   Vertical analyses

Consistency also required interpreting the financial statement with the help of vertical analyses. This has been explained with an example

	2016	2015	Change
Selling Expenses	40,000	20,000	20,000
Financial Expenses	50,000	20,000	30,000
Administration expenses	60,000	50,000	10,000

5.   Evaluation of Performance

Consistency in Presentation helps management and other stakeholder to evaluate the performance of the entity. This has been explained with small example

	2016	2015
Profit	1200	1000

Above example clearly shows that profitability of the company has improved in 2016 by $ 200.

Thus we can conclude that consistency is an important accounting principle and it has direct relationship with understanding of financial statements and decisions making process.

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6.   Condition for Change in presentation

Under the following condition the consistency may be violated.

a)    Change is required by IAS

b)   Change will improve the understanding.

c)    Consistency facilitates vertical analyses.

d)   Consistency principle helps in evaluation the performance.