Objectivity principle is a rule in accounting stating that "accounting measurements and accounting reports should use (Introduction to accounting... 2005, s. 100):
- verifiable data.
In other words, accountants, accounting systems, and accounting reports should rely on subjectivity as little as possible". Accounting requires the use of only objective data (even if the data is negative for an entity) as opposed to subjective data. The aim of using objectivity principle is to defend the entities from "corrupting influence" that comes from adapting subjectivity when keeping company's accounting records (QuickBooks… 2015, s. 24-25).
The objectivity principle requires that institutions data and financial statements data in the records kept by accountants are based on impartial evidence (Survey of accounting 2009, s. 23). While in accounting practice the point of view of an accountant plays an important role during financial statement preparation, it is crucial that all the data provided by accountants is supported by relevant documents. This makes financial statements authentic and ensures they represent the actual condition of an institution (Financial accounting: concepts… 2010, s. 20).
Objectivity principle in practice
In order to maintain the trust of users of financial statements, the objectivity concept needs to be strictly supported. This is the reason why evidence such as "invoices and vouchers for purchases, bank statements for the amount of cash in the bank, and physical counts of supplies on hand" needs to be kept by accountants. These documents are easy to verify and objective. There are also other cases where "judgements, estimates, and other subjective factors" can be utilized while preparing financial statements but accountants should be vary to always use the evidence that is most objective (Survey of accounting 2009, s. 23).
Interpretations of the objectivity principle
The principle has been interpreted in many different ways. Below are different interpretations (The cultural shaping… 1995, s. 46):
- It is free from personal biases, so it is strictly impersonal.
- It is easily verifiable because we possess document evidence.
- It is a result of an agreement in a particular group of measurers so it is implied that objectivity will be contingent on this group of observers.
- An indicator of the objectivity principle can be "the size of the dispersion of the measurement distribution".
- Banerjee B.K. (2010), Financial accounting : concepts, analyses, methods and uses PHI learning, s. 20.
- Hand L., Isaaks C., Sanderson P. (2005), Introduction to accounting for non-specialists Thomson learning, s. 100.
- Nelson S.L. (2015), QuickBooks 2015 all-in-one for dummies John Wiley & sons, s. 24-25.
- Riahi-Belkaoui A. (1995), The cultural shaping of accounting Quorum books, s. 46.
- Warren C.S. (2009), Survey of accounting South-western CENGAGE learning, s. 23.
Author: Justyna Szczepaniec