Inconsistent Statements on Accounting Principles
Response to the following problem:
AICPA Adapted 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 economic entities. 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, which apply the conservatism convention, can be free from bias (or can give a presentation that is fair with respect to continuing and prospective stockholders as well as to retiring stockholders).
Required:
Evaluate each of the preceding numbered statements as follows:
1. List the fallacies, half-truths, circular reasoning, erroneous comments or conclusions, and/or inconsistencies.
2. Explain by what authority and/or on what basis each item listed in (1) 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.