Objectivity Concept of Accounting


Definition, Explanation and Use of Objectivity Concept (Convention, Principle) of Accounting:

Objectivity concept (convention or principle) of accounting defines and states that while preparing the financial statements, the accountant should try to use data which is as objective and reliable as possible. In other words, the accounts should be concerned, as far as possible, with the facts and as little as possible with the opinions.

It also emphasizes that financial statements must be viewed not from the standpoint of someone inside the firm or business, but from that of an outside observer, looking at the firm and all other firms with the same attitude. It should be free from personal bias.

Example 1:

Bakes firm purchase an equipment of $50000. When firm ask for the demand and receive the equipment, it must have received a bill memo. And when the firm has made the payment, it should also have received a receipt. According to the objectivity concept of accounting, the firm should keep all the bills and receipts that provides the proof of the transaction. This will also make it easy for the company at the time of its internal or external audit.

Example 2:

Owner of the VIP Motor Parts has given the task to accountant to prepare the financial statement. Accountant asks for the records of the payments and receivables. However, the owner says it will take time to get the records, hence use the numbers in the accounting system. This is clearly the violation of objectivity concept (principle) of accounting.