Sociologists explain this psychological principle by the sense of obligation or indebtedness we automatically feel when someone does something for us because of the social norms that govern our relationships. If you have any comments related to the Consistency Principle, please drop it here or create a new topic in our forum.The Reciprocity Principle describes the human tendency to be more likely to want to give something back after something is received, whether that be a favour, gift, invitation, etc.
For example, through depreciation, accrual, and other expenses. Sometimes, management’s performance is based on Net Sales or Net Profit and the way how management not complying the Consistency Principle in their Financial Statements also based on this.įor example, if the performance is base on Net Sales, management might not recognize revenues by using the same accounting policies.Īnd if management performance is base on Net Profit, management might play around with operating expenses to ensure that net profit looks favorable. This is how we apply the Consistency Principle.
#Principle definition full
All of the change requires full disclosure in the financial statements and how the change affected. In this case, the entity should apply with IAS 8 whether it is a retrospective or prospective change. In 20, it uses a straight line.īut, the company subsequently wants to change its accounting policies from a straight line to a declining balance. Its accounting policies for depreciation are using a straight-line basis. Example of the consistency principle:Ĭompany A’s Financial Statements report base on IFRS. The Consistency Principle that you should follow is IAS 8. For example, if the financial statements use IFRS. Related article What is the Full Disclosure Principle? Definition, Example, Checklistĭifferent accounting standards probably use different guidelines.
#Principle definition how to
And the solution is the find the guideline on how to deal with it. There is a requirement from the regulator of those jurisdictions and also the requirement from the entity itself.Īll of these things cause the entity to apply the inconsistency principle. For example, there is a requirement to change accounting policies by the standard setter. There are many cases that caused the entity to apply inconsistent accounting principles or policies. Why is the accounting principle inconsistent? The correctness of decision making highly depends on the accuracy of financial information.
In addition, this concept, consistency principle, also quite important for users of financial statements, investors, and shareholders.Īs long as the financial statements are consistently use accounting policies and principles, the financial statements will be more accurate and reliable. In case there is any change in accounting policies and estimates, IAS 8 should be used. IFRS also requires the entity to apply the same accounting policies in reporting its financial statements. It is a huge risk to the user of financial statements if they are not fairly present. The main objective of the consistency principle is to avoid any intention from management using an inconsistent approach to manipulate the financial information to ensure their financial statements look healthy.Īnd sometimes, management could use the inconstancy principle on the same accounting transactions or accounting even in their financial records. The consistency principle is the accounting principle that requires an entity to apply the same accounting methods, policies, and standards for preparing and reporting its financial statements.
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