What does the objective evidence principle require?

• A. No documentation is required for any transaction
• B. Proof or documentation must exist to support a transaction
• C. Financial information can be based on hearsay
• D. Transactions can be recorded without receipts

Answer: (B)

The objective evidence principle requires that proof or documentation must exist to support a transaction. This principle emphasizes the importance of reliability in financial reporting. By mandating that all transactions be substantiated with appropriate documentation, such as invoices, contracts, or receipts, it ensures that the information presented in the financial statements is accurate and verifiable. This enhances the credibility of the financial records, allowing users, such as investors, creditors, and regulatory bodies, to rely on the figures provided.

Having this principle in place helps to eliminate potential biases or inaccuracies that might arise from subjective interpretations of financial activities. The principle upholds the integrity of financial reporting, ensuring that all reported transactions are based on concrete evidence rather than assumptions or personal judgments. This is particularly crucial in maintaining transparency and accountability within financial practices.