discuss consistency of presentation as a general feature of financial statements

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CONSISTENCY OF PRESENTATION AS A GENERAL FEATURE OF FINANCIAL STATEMENTS.

The consistency principle in the presentation of financial statements means that once an organization has adopted an accounting method , principle , practice and procedure ,then the company shall continue to follow those same accounting methods , principles ,practices and procedures for events and transactions that are materially similar even in the future accounting periods.
This principle of consistency in the presentation of financial statements is related to some qualitative characteristics like reliability of the financial statement and comparibility of the financial statements over a period of time . It is these very important features or qualities that makes the accounting information very useful.
Users of the financial statements can go with the presumption and understanding that that the same rules and principles are followed in all the years for which the financial statements are reported unless there are justifiable reasons to adopt some changes.
This principle of consistency in the presentation of financial statements may not be always possible or feasible to follow if there is are reasonable grounds for change and there are sufficient reasons for adopting a more preferred method or procedure.The valid reasons for adopting a change could be due to changed circumstances, material changes in the nature of the business operations or the requirements of a new IFRS.
If an organization has adopted a change then the organization must clearly document and disclose the nature of change , reasons for adopting the change and its effects on the items of the financial statements and this document should be included in the notes accompanying the company’s financial statements.

Example: If a company is following the declining method of depreciation for its equipment . Then as per the consistency principle it should continue use that declining method for its equipment in the subsequent periods also and if the company wants to change over to another depreciation method like straight line method then the company must state the nature of change , the reasons for change and the effect of the change on items like the accumulated depreciation in its financial report.

Sometimes if there are no valid reasons for change and still the company has gone in for a change in the accounting method or principle or procedure then the auditor may refrain from giving an opinion on the financial statements.

ekkarill92 answered 1 year ago

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