Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281



Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem

Inconsistent Statements on Accounting Principles

The following two statements have been taken directly or with some modification from the accounting literature. Each of them is either taken out of context, involves circular reasoning, and/or contains one or more fallacies, half-truths, erroneous comments, conclusions, or inconsistencies (internally or with generally accepted principles or practices).

Statement 1 Accounting is a service activity. Its function is to provide quantitative financial information that is intended to be useful in making economic decisions about and for companies. Thus, the accounting function might be viewed primarily as being a tool or device for providing quantitative financial information to management to facilitate decision making.

Statement 2 Financial statements that were developed in accordance with generally accepted accounting principles should be conservative.


Evaluate each of the preceding numbered statements as follows:

  1. 1. Last the fallacies, half-truths, circular reasoning, erroneous comments or conclusions, and/or inconsistencies.
  2. 2. Explain by what authority and/or on what basis each item listed can be considered to be fallacious, circular, inconsistent, a half-truth, or an erroneous comment or conclusion. If the statement or a portion of it is merely out of context, indicate the context(s) in which the statement would be correct.

To determine

Evaluate the following the number statements:

  1. List out the fallacies, half-truths, circular reasoning, erroneous comments or conclusion and inconsistencies in the given statements.
  2. Explain the basis or authority by which the item listed can be considered as fallacies, half-truths, circular reasoning, erroneous, comments or conclusion and also indicate the statement that will be considered as correct when the statement or portion is merely out of context.

American Institute of Certified Public Accountants (AICPA):

An “American Institute of Certified Public Accountants” code of professional conduct expresses a CPA’s ethical and professional responsibilities to the public, clients and colleagues. The code of conduct provided by AICPA, guides the members perform their professional responsibilities in a better way and it also express the basic tenets on ethical and professional conduct.

Statement 1:

  1. The given statement has an erroneous conclusion because primary motive of accounting function is to provide financial information to the management.
  2. Accounting is a service activity, which provides accounting information for purpose of making economic decision...

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