Consistency helps readers compare reported amounts because a change in accounting method can otherwise be mistaken for a change in the business. It can apply to one company's reports across periods or to different companies using the same methods.
Comparability is the ability to identify and understand similarities and differences. Consistency helps comparability; it does not guarantee it. Companies can use the same methods while operating different businesses or reporting different period lengths.
Consistency does not mean refusing to change
Suppose a manufacturer uses warranty claims experience to estimate repair costs. New evidence of product defects can require updated assumptions while the company continues to use that estimation method. Repeating the old rate without considering the new evidence would not make the estimate better.
ASC Topic 250 presumes that an adopted principle continues for similar events. ASC 250-10-45-11 states the consistency requirement. Changes in accounting principles, changes in estimates, and corrections of errors have different reporting requirements. Determine which occurred before deciding how to account for it. Explain the change and its effects as required so readers can interpret the comparison.
Put the concept to work
Understand this concept
- Distinguish consistency from comparability and explain why using consistent methods does not mean ignoring new evidence or required changes.
Learning resources
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Build on these ideas
- Comparability — Understand
To understand this concept: Helpful. The two qualities support comparison but address different sources of variation.