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  3. The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of acc

The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of acc

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问题     The reliability principle requires that accounting information be dependable--free from significant error and bias. Users of accounting information rely on its truthfulness. To be reliable, information must be verifiable by people outside the business; Financial statement users may consider information reliable if independent experts would agree that the information is based on objective and honest measurement.
    Consider the error in a company’s failure to accrue interest revenue at the end of an accounting period. This error results in understated interest revenue and understated net income. Clearly, this company’s accounting information is unreliable.
    Biased information -- data prepared from a particular viewpoint and not based on objective facts -- is also unreliable. Suppose a company purchased inventory for $ 25. 000. At the end of the accounting period, the inventory had declined in value and can be replaced for $ 20 000. Under the lower of cost or market rule, the company must record a $ 5 000 loss for the decrease in the inventory’s value. Company management may believes that the appropriate value for the inventory is $ 22 000, but that amount is only an opinion. If management reports the $ 22 000 figure, total assets and owner’s equity will be overstated on the balance sheet. Income will be overstated on the income statement.
    To establish a reliable figure for the inventory’s value, management could get a current price list from the inventory supplier or call in an outside professional appraiser to revalue the inventory. Evidence obtained from outside the company leads to reliable, verifiable information. The reliability principle applies to all financial accounting information --from assets to owner’s equity on the balance sheet and from revenue to net income on the income statement.
Why is biased accounting information unreliable?
选项 A、Because the information is not based on objective facts.
B、Because the information consists of some state data.
C、Because the information is prepared on the basis of facts.
D、Because the information is made according to the inventory value of the business firm.
答案A
解析
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初级（银行综合类）

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金融英语（FECT）

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