Question

“Accounting for companies is just a way to fool a wide variety of stakeholders. There are so many ways to represent the numbers! It’s like looking at a piece of artwork sometimes. I don’t trust anything that’s produced in those published financial statements!”

Critique the statement above. In so doing:

a) comment in general terms on what underpins this statement above.

b) identify and explain the nature of 6 examples of differing approaches to determining values to be included in income statements and statements of financial position, and in so doing illustrate your explanations.

Please provide a good enough answer for the above question.

Answer 1

There are various methods of accounting therefore it is said by many scholars that Accounting is an art as well as a science. It is science because there are certain rules which are fixed but at the same point of time there are various methods of accounting. This underpins the above statement.

The following are the 6 examples of differing approaches:

1) Sales can be on the basis of Gross Sales or Net Sales or may be on the basis of cash or credit sales.

2) Method of accounting could be Cash or Mercantile.

3) Depriciation could be calculated either on Fixed lines or Written down value lines.

4) Value of closing stock could be calculated either on Market Value or Cost Value

5) Method of Inventory could be either FIFO (First in First Out) or LIFO (Last in First Out)

6) Goodwill may be calculated either on Sales basis or profit basis.