Q.A company has been using the Straight Line Method of depreciation for the past five years, and this year proposes switching to the Written Down Value Method simply because it reduces this year's reported profit. Which convention does this violate, and what is the correct procedure if a genuine change is warranted?

Switching a chosen accounting method purely to manage the current year's profit figure directly attacks the whole reason this convention exists. …

This violates the Convention of Consistency, which requires that once an accounting method is adopted, it should be followed period after period so that figures remain genuinely comparable from one year to the next. Switching methods purely because it produces a more favourable profit figure this year defeats the entire purpose of financial statements being comparable, and would let a company manipulate reported profit at will by simply re-choosing whichever method suits it each year.

Consistency does not mean a method can never be changed — a genuine change (e.g. a change in the pattern in which the asset's economic benefits are consumed, supported by a real business reason) is permitted, but it must satisfy two conditions: (1) there must be a valid, disclosed reason for the change, not simply a wish to alter the reported profit figure, and (2) the change, and its effect on the year's profit, must be clearly disclosed in the financial statements (tying in with the Convention of Full Disclosure) so that users are not mi …

Confusing Consistency (same method, year to year) with Conservatism (anticipate no profit, provide for losses) — the two conventions are frequently mix …