What does consistency in accounting refer to?

Consistency in accounting refers to the practice of using the same accounting principles and methods from one financial period to the next. This approach is crucial because it enhances comparability and reliability of financial statements over time. When the same accounting methods are applied consistently, stakeholders—including investors, creditors, and management—can better assess a company's financial performance and position by comparing results across different periods.

If a company were to use different accounting methods each year or change practices based on market conditions, it would create inconsistencies that could mislead users of the financial statements. Similarly, applying different methods for various departments would hinder the ability to accurately consolidate financial data, undermining the purpose of uniform financial reporting. Overall, consistency ensures that changes in financial results are reflective of actual business performance rather than arbitrary shifts in accounting policies.