Question

Accounting estimates, by their nature _______.

Select one:

a. involve subjective decision making on the part of management

b. should not be estimated by management, but rather by the auditor at the end of the period

c. involve objective decision making on the part of management

d. should cause little or no variance at the end of the period

Answer 1

Answer:

Option (a) involve subjective decision making on the part of management.

Explanation:
Accounting Estimates involve management's judgment of expected future benefits and obligations relating to assets and liabilities (and associated expense and income) based on information that best reflects the conditions and circumstances that exist at the reporting date. By its nature, estimates are subjective and may require frequent revisions in future. Revision of estimates must be distinguished correction of errors which occur because of not using information that was available at the time of preparation of financial statements.