The accounting system follows the “objectivity (verifiability) principle,” which requires that every entry in the books be supported by unbiased, factual, and independently-verifiable evidence (e.g., invoices, contracts, bank advices). This requirement is fundamental to both generally accepted accounting principles and to effective fraud-deterrence, because it allows outside parties—auditors, investigators, regulators—to trace transactions back to hard documentary support. Consequently, accounting records are designed to be kept on objective, not subjective, evidence; the statement presented in the question is therefore false. Why the opposite answer (“True”) is wrong: If accounting records were maintained on subjective evidence (personal opinion, memory, or estimates without corroborating documentation) they would lack the reliability, consistency, and audit trail demanded by GAAP and by standard internal-control frameworks. Such subjectivity would defeat the very purpose of accounting records as admissible, persuasive evidence in fraud examinations or financial statement audits.

A. True: This option is incorrect. If accounting records were designed to be kept on subjective evidence, financial statements would be unreliable, inconsistent, and incomparable between different entities. This would undermine the entire purpose of financial reporting and make it impossible to audit or use for any meaningful economic decision.

References:
1. ACFE Fraud Examiners Manual (2023 Edition). In Section 1, "Financial Transactions and Fraud Schemes," the manual discusses the conceptual framework of accounting. It emphasizes "Faithful Representation" as a fundamental qualitative characteristic of useful financial information. For information to be a faithful representation, it must be complete, neutral (free from bias), and free from error. The characteristic of verifiability is a key component, meaning that "different knowledgeable and independent observers could reach consensus... that a particular depiction is a faithful representation." This directly supports the need for objective, not subjective, evidence.
2. Financial Accounting Standards Board (FASB). (2018). Conceptual Framework for Financial Reporting—Chapter 3, Qualitative Characteristics of Useful Financial Information. This is an official source defining the principles of U.S. GAAP. Paragraph QC19 states, "Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation." This directly contradicts the notion that accounting is based on subjective evidence.
3. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting (17th ed.). Wiley. As a standard university-level textbook, it explains the conceptual framework in Chapter 2. The text describes verifiability as an enhancing qualitative characteristic, noting that information is verifiable when independent measurers, using the same methods, obtain similar results. This principle of verifiability is the operationalization of objectivity.

1. Association of Certified Fraud Examiners

Fraud Examiners Manual

2019 ed.

Section “Source Documents and Evidence

” pp. 2.106-2.107.

2. Financial Accounting Standards Board

Statement of Financial Accounting Concepts No. 2

“Qualitative Characteristics of Accounting Information

” pars. 30-35 (reliability and verifiability).

3. Massachusetts Institute of Technology OpenCourseWare

15.514 “Financial & Managerial Accounting

” Lecture 2 slides

slide 7: “Objectivity Principle: Record transactions only when supported by verifiable documentation.”

4. Kothari

S. P.

Ramanna

K.

& Skinner

D. J. (2010). Implications for GAAP from an analysis of positive research in accounting. Journal of Accounting & Economics

50(2-3)

246-286. DOI:10.1016/j.jacceco.2010.09.003 (discusses the necessity of verifiable

objective evidence for reliability).