Which accounting principle requires consistency in financial reporting?

The principle that requires consistency in financial reporting is the consistency principle. This principle emphasizes that companies should use the same accounting methods and practices from one period to the next unless a change is warranted and justified. This consistency allows users of financial statements—such as investors, creditors, and regulators—to easily compare financial information across different time periods, leading to enhanced transparency and reliability in financial reporting.

By adhering to the consistency principle, organizations help ensure that their financial statements are comparable and provide a clearer picture of their financial performance and position over time. This is crucial for stakeholders who depend on historical data to make informed decisions regarding investments, lending, and other financial activities. Changes in accounting methods can occur, but they must be clearly disclosed and justified to maintain the integrity of financial reporting.

In contrast, while the economic entity assumption, cost principle, and conservatism principle are important accounting concepts, they do not specifically address the need for consistency in the way financial information is reported across different accounting periods.