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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Rao Traders changed its method of stock valuation every year to show the best possible profit. Which accounting convention or qualitative characteristic is mainly violated by this practice?

The practice violates consistency, which supports comparability. Accounting policies should be applied uniformly from year to year so users can compare results across periods. Changing the stock valuation method annually to show better profit makes figures non-comparable and can mislead users.

  1. ABusiness entity concept
  2. BConsistency and comparabilityCorrect
  3. CMoney measurement concept
  4. DDual aspect concept

Explanation

Changing valuation methods yearly prevents users from comparing results across periods. Consistency in applying policies supports comparability. The entity, money measurement and dual aspect concepts are not affected by changing a valuation method.

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