Tiểu Luận Môn Anh Văn Chuyên Ngành Kế Toán Topic The Consistency Principle In Accounting.pdf

This principle requires companies to use the same accounting methods and procedures for similar transactions and events in each accounting period.. THE CONSISTENCY PRINCIPLE IN ACCOUNTIN

TRƯỜNG ĐẠI HỌC SÀI GÒN

TIỂU LUẬN

MÔN ANH VĂN CHUYÊN NGÀNH KẾ TOÁN

TOPIC: THE CONSISTENCY PRINCIPLE IN

ACCOUNTING

NHÓM MÔN HỌC: 04

TIẾT: THỨ BA - TIẾT 6,7,8

Năm 2023

THÀNH VIÊN NHÓM

STT Họ và tên MSSV

1 Mai Tran Gia Nhi 3121320277

2 Hà Thị Ngân 3120320239

3 Trần Nguyễn Ngọc Phương 3121320011

5 Nguyễn Vương Kiều Ngân 3118320212

6 Cao Huỳnh Minh Ánh 3121320053

7 Lý Thị Ngọc Mai 3121320196

8 Nguyén Thi Thao Uyén 3120320497

9 Tran Thi Ngoc Anh 3121320024

10 Nguyén Thi Anh Thu 3121320398

TABLE OF CONTENTS

INTRODUCTION cssssssssccsscssecssssnsssnssnsneneesseessesonssnnssnsesnscsesonsesnnes conseessesenansessnees 4 THE CONSISTENCY PRINCIPLE IN ACCOUNTTING s5 s=essee 5 B500 059i90002.4 5

Il MPORTANCE OF CONSISTENCY PRINCIPLE c c2 2222k 5 II] FEATURES OF THE CONSISTENCY PRINCIPLE IN ACCOUNTING 6

IV THE ADVANTAGES AND DISADVANTAGES OF CONSISTENCY PRINCIPLE

A The advantages of the consIstency prIneIpÏÌe : 5s 2 22s 3x2 222 sszzs2 7

B The disadvantages of the consistency princIpÌe 5-55 52s 2222 xxcszsss2 8

V APPLICATION OF CONSISTENCY PRINCIPLE IN ACCOUNTING 9

VỊ, MEASURES TO ENSURE CONSISTENCY IN ACCOUNTING li

INTRODUCTION

The consistency principle is a critical concept in accounting that plays a significant role in ensuring the accuracy and reliability of financial statements This principle requires companies to use the same accounting methods and procedures for similar transactions and events in each accounting period This consistency ensures that financial statements are comparable and reflect the company's financial performance and position over time

In this essay, we will explore the importance of the consistency principle in accounting

by examining its definition, application, and its impact on financial reporting We will also discuss the advantages and disadvantages of the consistency principle, as well as its relationship with other accounting principles By understanding the role of the consistency principle in accounting, we can gain a deeper appreciation for the importance of accurate and reliable financial reporting and its impact on the decisions of stakeholders such as investors, creditors, and regulators

THE CONSISTENCY PRINCIPLE IN ACCOUNTING

I, DEFINITION [ CITATION Negu22 \1 1066 |

According to the Vietnamese Accounting Standard, the consistency principle is a fundamental concept in accounting, which is the qualitative basis of accounting information that business accountants need to master that requires companies to use the same accounting methods and procedures for similar transactions and events within each accounting period This principle ensures that financial information is presented consistently over time, which promotes comparability and transparency in financial reporting

If there is a change in the selected accounting policy and method, the reasons and effects of such change must be explained in the notes to the financial statements

Il IMPORTANCE OF CONSISTENCY PRINCIPLE: [ CITATION Negu23 \l

1066 | [ CITATION Wha \1 1033 |

All entities need to follow accounting policies and principles consistently As consistency is one of the fundamental accounting assumptions unless the change in accounting policies is disclosed, it is assumed that all accounting policies followed last year are followed in the current year Consistency makes the financial statements comparable, and it also gives ease in the preparation of accounts It is used in all industries, whether manufacturing, trading, or service industry

Consistency is extremely important in accounting for several reasons:

1 Comparability:

Consistency ensures that financial information is comparable over time By using consistent accounting methods and procedures, companies can provide more accurate and reliable financial information to stakeholders, including investors, creditors, and regulatory agencies This consistency allows these stakeholders to make more informed decisions about the company's financial health and performance

2 Accuracy and reliability:

Consistency helps to reduce the risk of errors in financial reporting When a company uses consistent accounting methods and procedures, it can be easier to identify errors or

discrepancies in its financial information This, in turn, can help to improve the accuracy and reliability of financial statements

3 Transparency

Consistency promotes transparency in financial reporting By using consistent accounting methods and procedures, companies can provide clear and meaningful information to stakeholders about the company's financial health and performance This transparency can help to build trust and confidence in the company among its stakeholders

4 Simplification:

Consistency helps to simplify the accounting process By using the same accounting methods and procedures for similar transactions and events, companies can create standardized processes that are easier to manage and less prone to errors

5 Prevention of manipulation: [ CITATION 7ng20 \l 1066 ]

Consistency helps to prevent the manipulation of financial information If a company can change its accounting methods or procedures from one period to the next, it could use this flexibility to manipulate its financial statements to improve its financial performance artificially By requiring that companies use consistent accounting methods and procedures, the consistency principle helps to prevent this type of manipulation

TIT FEATURES OF THE CONSISTENCY PRINCIPLE IN ACCOUNTING[ CITATION Neu22 \1 1066 |

The following traits describe the consistency principle:

The principle of consistency ensures that accounting information is stable and comparable This comparison can be between accounting periods, plans or forecasts, and actual results Consistency helps to compare information provided by financial reports of successive periods

> Consi ‘a bot! :ncinl | methods:

Consistency needs to be maintained in the application of accounting principles, measurement methods, and recording of transactions with similar natures in similar circumstances

3 Explaining changes:

When a company needs to change accounting principles or methods, the accountant must disclose essential information about the nature and reason for the change At the same time, the accountant should clarify the impacts of the change on the current period's results and the cumulative effects of the change on past results

IV THE ADVANTAGES AND DISADVANTAGES OF CONSISTENCY PRINCIPLE IN ACCOUNTING: [ CITATION Wha \I 1066 | [ CITATION Con \1 1066 | [ CITATION Pha23 \I 1066 |

A The advantages of the consistency principle

Some of the advantages of the consistency principle are:

1 Easy for director:

When accounting principles and estimates are consistently applied, management will

be familiar with accounting procedures, technology, treatments and their effects, and help make appropriate decisions

> Simplificati Pil

Consistency helps to simplify the accounting process By using the same accounting methods and procedures for similar transactions and events, companies can create standardized processes that are easier to manage and less prone to errors

3 Cost Efficiency:

If the accounting principles and methods used by the company in the preparation of the annual accounts were to change every period, it would significantly increase the training costs and reduce the efficiency of the employee Knowing the process also increases the efficiency of the employee

4 Increased comparability:

By requiring companies to use the same accounting methods and procedures for similar transactions and events within each accounting period, the consistency principle promotes comparability of financial information over time This allows stakeholders to make better-informed decisions about the company's financial health and performance

5 Auditor Requirements:

The majority of auditors do not give their opinion on the reliability of the company's annual accounts if they find that the company has violated the principle of continuity and has not provided sufficient notices or sufficiently compelling reasons for this

B The disadvantages of the consistency principle

While the consistency principle is generally considered a fundamental concept in accounting, there are some potential disadvantages to its application, including:

1 Lack of flexibility:

The consistency principle can limit a company's ability to change its accounting methods or procedures in response to changing circumstances, such as changes in the business environment or accounting standards In some cases, this lack of flexibility can make it difficult for companies to accurately reflect the economic reality of their transactions

2 Reduced relevance:

The consistency principle can lead to the use of outdated accounting methods or procedures that are no longer relevant or useful in the current business environment This can result in financial information that is less meaningful or informative to stakeholders

3 Increased complexity

The consistency principle can increase the complexity of financial reporting by requiring companies to use the same accounting methods and procedures for similar transactions and events, even if those methods and procedures are complex or burdensome

4, Reduced comparability between companies:

While the consistency principle promotes comparability of financial information over time for a single company, it can reduce the comparability of financial information between different companies if they use different accounting methods or procedures

5 ‘ally misleadine fi ‘al inf

In some cases, the consistency principle can result in financial information that is misleading or not representative of the economic reality of a company's transactions For example, if a company uses a method for recognizing revenue that is not consistent with the nature of its business, it could result in financial information that is not meaningful or informative to stakeholders

V APPLICATION OF CONSISTENCY PRINCIPLE IN ACCOUNTING: [ CITATION Negu22 \1 1066 |] [ CITATION Wha \I 1066 | [ CITATION Con \I

1066 ] [ CITATION Con1 \1 1033 |

The consistency principle is applied in accounting by requiring companies to use the same accounting methods and procedures for similar transactions and events within each accounting period This means that companies should follow the same accounting practices for similar types of transactions, such as revenue recognition or inventory valuation, from one accounting period to the next, unless there is a valid reason for changing them

By applying the consistency principle, companies can ensure that their financial information is comparable over time, which promotes transparency and comparability in financial reporting This allows stakeholders to make better-informed decisions about the company's financial health and performance

However, there are situations where a company may need to change its accounting methods or procedures, such as when accounting standards or regulations change In these cases, the company must disclose the change and explain the impact on its financial statements This change could make it difficult for stakeholders to compare the financial performance of the company from one period to the next

The consistency principle is applied in accounting in several areas, including depreciation, inventory valuation, revenue recognition, goodwill, and tax accounting, among others By promoting consistency, transparency, and comparability in financial reporting, the consistency principle helps to ensure that financial information is accurate, reliable, and informative to stakeholders

1 Depreciation: [ CITATION Con23 \I 1066 ]

The consistency principle requires companies to use the same method for calculating depreciation expense for each type of asset

For example, if a company uses the straight-line method to calculate depreciation expense for its buildings, it must continue to use this method in subsequent accounting periods unless there is a valid reason for changing it

If a company changes its depreciation method, it can result in inconsistent accounting and affect the reported value of assets and net income

2 Inventory Valuation: