Answer to Question #43202 in Management for raj

Question

.“The Convention of consistency is necessary for making the financial statements comparable.” Discuss.

Answer 1

Convention of consistency states that it is impossible for one accounting period to use several forms and methods of accounting because the ability to map, stockpile and compare data is lost. This principle does not mean that not well chosen or outdated method of accounting must be used indefinitely. It is important that in order to change an established form of accounting there must be a good reason. This principle is very important, and its use is essential for every organization, if it seeks to objectively present accounting information. If different accounting procedures and practices are used for preparing financial statements of different years, then the result will not be comparable.

Therefore, as per this convention the same accounting methods should be adopted every year in preparing financial statements. But it does not mean that a particular method of accounting once adopted can never be changed. Whenever a change in method is necessary, it should be disclosed by way of footnotes in the financial statements of that year.