What is Objectivity Principle?

According to the objectivity principle, accounting should be free from personal bias. That is, the accounting transaction should be supported with written documents such as cash memo, invoices etc. It basically means that the accounting entries shall be based on facts rather than being open to interpretation, as interpretations are nothing but opinions.

Examples of Objectivity Principle

Mr. X bought a plot of land 5 years ago for Rs 20,00,000. Today, he gets the valuation of plot done from 5 different valuators who all are experts in their field. But, at the end of the day they are giving an opinion only on the value of land
which is subjective. The only thing objective here is the value of land 5 Years ago i.e. Rs 20, 00,000 and the same should be taken into consideration.

Miss A is an accountant responsible for auditing the accounts of XYZ Ltd. She asks for invoices and other documents to support the purchases and sales. XYZ Ltd requests her to take the numbers as given as it will involve too much work for them to search for related documents. Subsequently, she took the totals as given violating the objectivity principle because financial statements must be based on verifiable and reliable documents and not on someone’s opinion or interpretation.


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Accounting Principles

According to The American Institute of Certified Public Accountants “Principles of Accounting are the overall law or rule adopted or proposed as a guide to action, a settled ground or basis of conduct or practice”

Basic Accounting Terms

After going through this lesson, you will be ready to understand the ‘Basic Accounting Terms’ that we commonly use in Accountancy.

3 Fundamental Accounting Assumptions

After browsing this lesson, you shall be ready to understand the subsequent Fundamental Accounting Assumptions: Going Concern, Consistency, Accrual