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What is the Consistency Principle?​

November 17, 2015

Questions about GAAP:

What is the consistency principle and why is it important?


The consistency principle states that companies should use the same accounting treatment for similar transactions over time.


The consistency principle is one of the Generally Accepted Accounting Principles (GAAP). GAAP is basically the rule book that accountants follow for preparing financial statements. The consistency principle ensures that similar transactions are recorded for using the same accounting method in different periods.

Companies should not use one accounting method today, use another the following period, and then switch back to the original one. However, companies do not have to use the same accounting method forever. They are allowed to switch the accounting method if they can demonstrate why the change is needed and if it improves financial information. If such a change occurs during a financial period, it must be disclosed in the notes to the financial statements along with the effects and date of the change. For example, a corporation may have been using the first-in, first-out (FIFO) method for recording inventory. If they have determined that a weighted average cost system for recording inventory is more beneficial, they are allowed to make the change as it may improve financial information. However, they have to be consistent with the change and would not be able to revert back to the old method in the near future to gain an advantage.

The matching principle prevents companies from changing methods for the purpose of manipulating financial statements. When accounting treatment of transactions is consistent year to year it is useful to managers, investors and bankers to make important decisions. GAAP allows the readers of the financial statements to review meaningful and comparable information.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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