C2-14

The following two statements have been taken directly or with some modifiications from teha ccounting literature. Each of them is taken out of context, involves circular reasoning, and or contains one or more fallacies, half-truths, erroneous comments, conclusions, or inconsistencies (interanlly or with GAAP).

Statement 1. Accounting is a service activity (true). 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 proceedings 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 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 in which the statement would be correct.