What does the consistency principle ensure about reports from different periods?

The consistency principle ensures that financial reports from different periods are prepared using the same accounting methods and principles. This consistency facilitates meaningful comparisons across reporting periods, allowing users of the financial statements, such as investors and analysts, to evaluate trends, performance, and financial position over time. By adhering to the same accounting practices, any changes in financial performance can be attributed to actual changes in the business itself rather than variations in the accounting methods used.

For instance, if a company alternates between different inventory valuation methods, it becomes difficult for stakeholders to assess its performance accurately, as variations might arise merely from the change in methodology rather than from operational performance. Thus, the principle is vital for the reliability and comparability of financial reports, which supports informed decision-making by users of the reports.