Sign Up for Discounts
This form does not yet contain any fields.
    Follow us on Facebook
    Controller Library Value Pack
    CFO Library Value Pack
    Accounting Standards Library

    Home >> Accounting Principles

     

    The Reliability Principle


    The reliability principle is the concept of only recording those transactions in the accounting system that you can verify with objective evidence.

    Examples of objective evidence are:

    • Purchase receipts
    • Cancelled checks
    • Bank statements
    • Promissory notes
    • Appraisal reports

    Note that the examples shown here are of documents generated by other entities (customers, suppliers, valuation experts, and banks). Since they are third parties, documents supplied by them are considered to be of higher value as objective evidence than documents created internally.

    The reliability principle is particularly difficult to meet when you are recording a reserve, such as an inventory obsolescence reserve, a sales returns reserve, or an allowance for doubtful accounts, since these reserves are essentially opinion-based. In these cases, it is particularly important to justify your actions with a detailed analysis of the reasons for the reserve. This is frequently based on verifiable historical experience with similar transactions, and which you expect to be repeated in the future.

    From a practical perspective, you should only record those transactions that an auditor could reasonably be expected to verify through normal audit procedures.

    Similar Terms

    The reliability principle is also known as the objectivity principle.

    Related Topics

    Accrual principle
    Conservatism principle
    Consistency principle
    Cost principle
    Economic entity principle
    Full disclosure principle
    Going concern principle
    Matching principle
    Materiality principle
    Monetary unit principle
    Revenue recognition principle
    Time period principle
    What are accounting principles?
    What is a going concern qualification?
    What is the prudence concept in accounting?