What Is Verifiability in Accounting?

by Kathy Adams McIntosh; Updated September 26, 2017

The financial data of a business forms the basis of most company decisions. Businesses trust their accountants to record all financial transactions and create accurate financial statements. Financial statements assist managers and business owners to make decisions that build the business’s profitability. To maintain that trust, many accountants hold an accounting degree and pursue certification. They need to adhere to a variety of accounting principles. Verifiability represents one of those principles.

Accounting Principles

Accounting principles provide guidance to accountants as they analyze financial transactions and record them in the financial records. The Financial Accounting Standards Board creates accounting principles that accountants need to follow. These principles tell the accountant how to handle specific transactions, such as recording a pension liability or revenue recognition. They also provide direction for the accountant’s general approach to recording financial transactions, such as integrity or verifiability.

Definition

Verifiability refers to the ability for anyone to confirm the numbers reported in the transaction. The accountant needs to ensure that anyone can review the transaction and arrive at the same conclusion. This includes the dollar amount of the transaction, which accounts to charge and when to make the entry. The accountant maintains the verifiability of each transaction by keeping the documentation used to record the transaction.

Purpose

The purpose of verifiability is to hold the accountant accountable for his work. Other employees, managers and auditors review the accountant’s work to determine whether he acted in accordance with all accounting principles. Employees need to look at historical transactions for some transactions. Managers oversee the accountant’s work. Auditors provide assurance that all transactions comply with accounting standards. The reviewer needs to be able to read the source documents to verify the transaction.

Source Documents

Source documents provide verifiability for each transaction. The source documents provide detailed information used to enter data in the financial records. Source documents vary based on individual transactions. Invoices and shipping documents serve as source documents for revenue transactions. Vendor invoices and receiving documents serve as source documents for purchases. Time cards serve as source documents for payroll transactions. The accountant keeps electronic or paper copies of these documents on file.