The consistency concept is very important because it requires that a business adopts certain accounting methods that are consistent throughout the life of the business. An example of this would be if a business decided that they will depreciate 10% off plant and machinery per annum using the straight line method they are required to keep that figure of 10% and method in the future for that particular asset because this is classed to be consistent. By using the consistency concept the value of an asset stays consistent and doesn't vary due to the changes that have been made in the accounting methods.
The asset would be affected if for example an asset was depreciated at 10% per annum using the straight line method in 2002, and in the following year the same asset is depreciated at a higher percentage of 20% using the reducing balance method. This would be very inconsistent and would have big impact on the value of the asset. By putting the above point into consideration the net profit value will vary because you would be inconsistent in depreciating the assets. This will cause confusion and companies might over value or under value their assets.
By using the consistency concept the users of the accounts can make direct comparisons between the financial statements of different years consistently. FRS 15 comes hand in hand with this concept because its objective is to ensure that tangible fixed assets are accounted for on a consistent basis. It also states that the company has to be consistent with its previous accounting policies such as the ones that are stated in the consistency concept. This FRS tells you that all tangible fixed assets need to be re-valued and it also contains a need for them to be re-valued every year consistently.
This FRS has the same effect on the profit and assets as the consistency aspect. Prudence is very important because it tells companies to account for profits only when they have occurred and account for losses when they are evidently foreseen. All known liabilities should be provided for, e. g. depreciation, bad debts, etc it is said to be better for the company when the profits are understated rather that overstated because the company might think that they have money that they really don't have.
This prevents an over-optimistic presentation of a business through the financial statements; therefore it doesn't confuse the owners and tells them the exact profit they are making. Some items are of such low value that they are not recorded in the financial statements, in other words they are not material enough. An example would be small expenses such as donations, purchase of plants; cleaning, etc are not recorded separately because they have very little value, so therefore they are grouped together. This is done so that the financial statement doesn't get too cramped up.
End of year stationary are not usually valued because they are considered not material enough and not worth the hassle. This might be wrong because at the end of the year all the stationary purchased is charged at an expense even though there is some left over but it is not material enough to effect the financial statement. Low cost assets such as staplers and waste paper bins should be treated as fixed assets but as they hold very little value they are just added onto the profit and loss account as a expense because they hold very little value.
This might have very little effect on the profit of the business because the things that are not accounted for have very little value, some businesses might think that items less than 1000 are not material, on the other hand smaller businesses might have a lower limit. FRS 3 is in place to highlight a range of important components of financial performance to make sure that the users understand the performance achieved by the entity in a period and to make sure that the financial statements can be assessed in future years.