Question

Which of the following is not true regarding accounting estimates?

a. Accounting estimates are based on management's knowledge and experience of past and current events.

b. Accounting estimates are based on management's assumptions about conditions that are expected to exist and courses of action the company expects to take.

c. Accounting estimates are based on both subjective and objective factors.

d. Because accounting estimates are based, in part, on management's knowledge and experience, they are not biased.

Answer 1

The statement that accounting estimates are not biased is not true. Accounting estimates can indeed be biased because they involve management's subjective judgments, despite being informed by experience and knowledge.

Step-by-step explanation:

The option that is not true regarding accounting estimates is: d. Because accounting estimates are based, in part, on management's knowledge and experience, they are not biased. Accounting estimates are indeed based on management's knowledge and experience as well as assumptions about future conditions and actions. Therefore, they inherently involve subjective judgment, which can lead to biases even if unintentional. The nature of these estimates is such that they are influenced by both subjective and objective factors, and while they endeavor to be as accurate as possible, they are not devoid of bias.