Objectivity and Subjectivity
In financial accounting it is necessary to attain the correct balance of objectivity and subjectivity when reporting financial information. In all cases, objectivity is to be preferred where possible.
The use of a method which gives a value everyone can agree on is said to be objective because it is based on factual occurrence. For example, the amount paid for a new vehicle. Everyone knows where the value came from and there will be ample evidence to support the value used in financial information.
Sometimes it is necessary to be subjective, usually because objective figures are not available. One example might be when trying to estimate the current value of a vehicle that was purchased for a known amount some years ago.
To ensure consistency when organisations are forced to be subjective, accountants follow a set of fundamental accounting concepts (or fundamental accounting principles) and these have been enshrined in relevant legislation and companies law.