Objectivity Concept in Accounting

What is the Objectivity Concept?

Objectivity concept in accounting is referred to as the principle which states that financial statements should be objective in nature. In other words, the financial information should be unbiased and free from any kind of internal and external influence.

Financial information presented in financial statements should be based on solid evidence and not just recorded based on some kind of opinion.

The purpose served by this principle is that it does not let the opinions of management and accountants impact the preparation of financial statements at any given point of time.

Advantages of Objectivity Concept

Following are some of the advantages of the objectivity concept:

1. Presentation of information in an unbiased manner results in data being transparent and trustworthy. Accounting information is used by various users of this information such as investors, stakeholders, suppliers and government agencies.

2. It shows that records presented in books are not based on opinion making the records completely factual.

3. It is helpful in creating goodwill for the company.

4. Misrepresentation of the information leads to the companies attracting penalties

Disadvantages of Objectivity Concept

Following are some of the disadvantages of the objectivity concept:

1. Companies produce a lot of data from their daily operations. Documenting all such entries requires a high cost and lots of different procedures.

2. It is a time consuming process that will impact the daily operations of the business.

3. It reduces the profit margin as external resources need to be hired in order to perform audit properly.

This was all about the topic of the Objectivity concept of accounting, which is an important topic of Accountancy for Commerce students. For more such interesting articles, stay tuned to BYJU’S.