Deck 7: Critical Thinking

Question 1

The following statements contain mistakes in reasoning (fallacies). Which fallacies are illustrated here (Some statements may illustrate more than one fallacy.)
1. Ever since she changed accountants, the profits in her business have increased. Clearly the new accountant knows how to cook the books.
2. Give them an inch and they'll take a mile.
3. Either we redesign all our accounting information systems or we might as well close down the business.
4. Don't listen to him. He's just a nerdy, detail-obsessed accountant.
5. Three out of four accountants agree: The Daily Balance Sheet is the best source of financial news.
6. We don't need more public transportation in our city. Everyone in my office agrees they'd rather drive their own cars.
7. We've used Biddy and Bully as our firm's legal firm for four generations. Even though their work has become unsatisfactory, I wouldn't want to change firms.
8. We shouldn't hire Jim Blankenship. He's from Hick City, and everybody knows people from there are just a bunch of ignorant buffoons.

Answer 1

A mistake in an argument leads to an incorrect result. A defective or a flawed step in the construction of the argument is called a fallacy. A fallacy can be both intentional and unintentional. An argument, that has a fallacy, is always void because of its wrong construction.
1.
Post hoc fallacy is where one situation takes place before the second and it is assumed that first situation is cause of the second.
In the given case, it is assumed that profits of the business have increased because of the new accountants without any substantial verification.
Therefore, it is a Post hoc fallacy.
2.
Slippery slope fallacy is a fallacy under which it is assumed that a series of unwanted events will occur, after an event will take place.
In the given case, give them an inch is the first event, they will take mile is the event that will occur after the first event.
Therefore, it is a Slippery slope fallacy.
3.
Either/or fallacy is where it is implicit that there are only two choices, however several ways can be possible.
In the given case, two extreme options (redesign the system or wind up the business) are mentioned and no other ways are taken into consideration.
Therefore, it is an either/or fallacy.
4.
Ad hominem fallacy is where opponent's character is judged rather than his arguments.
In the given case, accountant is called needy (accountant's character is taken into consideration) which is unrelated to the argument.
Therefore, it is an ad hominem fallacy.
5.
Fallacies involving appeals to emotion is appealing to fear, pity, prejudice, or anger.
In the given case, three out of four people thinks that the daily balance sheet is the best source for financial news does not ensure it. (This implies an appeal to prejudice.)
Therefore, it is a fallacy involving appeal to emotion.
6.
Fallacy of false authority is where immaterial authorization is taken significantly.
In the given case, need of public transportation is assumed because all employees in one office agree to it.
Therefore, it is a fallacy of false authority.
7.
Fallacy of appeal to tradition is where accepted ways are continued instead of up to date ways.
In the given case, B1 and B2 continue to work for a firm because their legal firm worked for the firm for four generations even if one their work's performance has degraded.
Therefore, it is a fallacy of appeal to tradition.
8.
Hasty generalization fallacy is where general facts are taken instead of effective sampling technique.
In the given case, everyone thinks people from city H are ignorant so person J is also ignorant because he is from city H.
Therefore, it is a hasty generalization fallacy.

Question 2

You are a partner in a medium-size CPA firm. One of your clients, Paul Garcia, who owns PG Corporation, has indicated a desire to report higher net income for his business this year because the company plans to apply for a loan at the bank. In an effort to increase reported net income, Mr. Garcia has told his accounting department to book immediately some large sales for which contracts have been signed but for which the goods will not be manufactured or shipped until after the first of the year. Write a letter to Mr. Gracia concerning your position on this issue. Chapter 9 discusses letter writing.

Answer 2

This letter is a written for communicating position of accounts department regarding the query of a client, in writing such letters critical thinking is required so that professional achieve the objective of writing the letter.
The letter is as follows:
11 July 20XX
J
Ma'am
After completing the observations, regarding the amount of sales. It is the duty of a CPA to conduct his work with acceptable standards. The observations prohibit increasing the sales.
As per the concept of revenue reorganization, revenue cannot be recognized only after signing of the contract. Revenue should be recognized when ownership, risk and rewards all transferred. Therefore sales after signing the contract cannot be recognized. All these were the points are come to my attention during my observations regarding the reorganization of higher sales.
However, the client's present sale is also enough for bank loan hence there is no requirement for showing higher sale and non compliance of standards. The client can take loan with the present sale and can increase the amount of loan by request of revision to the bank after increase in amount sale.
Thank you for giving such an opportunity and feel free to contact in case of any further queries.
Sincerely,
X CPAs.

Question 3

Your school is considering a new attendance policy. If this policy is adopted, students will be allowed only three absences for each class during the term. After the fourth absence, the registrar's office will suspend the student. Suspended students will be allowed to appeal the suspension if they can offer documented evidence that they missed the classes for legitimate reasons, such as illness, a death in the family, or jury duty.
Do you believe the new attendance policy should be adopted Following the guidelines for critical thinking discussed in this chapter, decide where you stand on this issue. (Remember the importance of identifying and responding to counterarguments.) After you have formed your conclusions, write your argument in the form of a letter to the Dean of Students at your school. Chapter 9 discusses letters.

Answer 3

A policy is a set of rules and regulations made by organization to work smoothly and effectively. It is mostly made to ensure the positive behavior in organizations. Policies can be made by firms, various public and private institutions, and government. A policy might have a shortfall that's why all the pros and cons are measured before making it.
Letter to the dean of students regarding the new attendance policy is as follows:
To: ABC, dean
From: XYZ
Subject: New attendance policy.
Date : December 1, 2016
The new attendance policy, that students will be allowed only three absences in each class during the term and fourth absence will lead to suspension, is quite beneficial to the betterment of the school.
Advantages of the new attendance policy:
1. The new policy will enhance the presence of the students.
2. Leaves for justifiable reasons are obtainable.
3. Discipline will be sustained.
Disadvantages of the new attendance policy:
1. The students might feel restricted due to lack of absences.
Since, advantages override the disadvantage, policy should be adopted. It appears that the new policy is beneficial for the school.

Question 4

Some administrators in your school have proposed a change in grading policy for major level courses-that is, beyond the principles or introductory level. They propose that instructors be required to grade courses on a Pass/Fail basis only. What would be the advantages and disadvantages of this proposed policy Consider both sides of this question, using critical thinking to analyze the pros and cons of the proposal. Then write a letter to the editor of your school's newspaper, or the local newspaper where your school is located, in which you summarize your findings. Chapter 9 discusses letters.

Question 5

You are a staff accountant at Outrageous Corporation. The controller of the company, Howard Eino, is concerned that profits reported in the annual report will not meet those forecast at the beginning of the year. He has asked you to decrease the amount of annual depreciation charged on certain equipment by revising the estimated life. When you tell Mr. Eino that revision of useful life solely to "manage" profit is not appropriate, he responds by saying, "Oh, everybody does it." You realize that if you fail to do what your boss wants, you may receive an unfavorable annual performance evaluation. How will you resolve this dilemma
To help yourself think through this problem, you've decided to write an outline in which you'll record the issues, relevant information, your reasoning, and the course of action you finally decide to take. You won't show the outline to anyone else, but you want it to be complete and well organized, so that your thinking will be clear. Write the outline.

Question 6

Look for illustrations of the fallacies discussed in this chapter in print media, on radio or television, on the Internet, or in the conversations you hear. Quote or paraphrase the passage that illustrates the fallacy, giving a citation of the source. Then identify the fallacy and explain the error in reasoning the passage demonstrates. Chapter 8 discusses how to document sources.

Question 7

Some people would argue that historical costs should no longer be used in accounting because they are not relevant. Others argue that departing from historical cost introduces too much subjectivity into accounting. Write out a detailed outline for a presentation to your class providing a defense of both points of view and then explain why the FASB has chosen to depart from historical cost in many of its accounting standards.
To prepare for this assignment, you may wish to review Chapter 15 on Oral Presentations.

Question 8

Some have suggested eliminating the provision of Rule 203 of the AICPA's professional ethics that permits non-conformance with GAAP if, in the opinion of the CPA, following GAAP would result in misleading financial statements. Thoroughly discuss the pros and cons of eliminating this provision of Rule 203 and present a convincing argument as to whether it should or should not be eliminated.
Prepare your argument in the form of a memo to the managing partner of your CPA firm, Elaine Morgan. Chapter 10 discusses memos.

Question 9

In 2010, the International Accounting Standards Board (IASB) changed its constitution to emphasize the adoption of International Financial Reporting Standards (IFRSs), rather than simply convergence of those standards with standards issued by individual countries. Write an essay on whether the SEC should support convergence between United States GAAP and IFRSs, or whether the SEC should support adoption of IFRSs. Your essay should demonstrate your understanding of critical thinking. Assume the audience for your essay is accounting students in your class. Chapter 3 discusses essays.

Question 10

Write an essay that addresses the purpose, structure, and recent activities of the IRS Oversight Board. Include a discussion of its strategy to reduce the "tax gap," that is, to reduce the amount of uncollected taxes. Your essay should demonstrate your understanding of critical thinking. Assume the audience for your essay is accounting students in your class. Chapter 3 discusses essays.

Question 11

Write a brief article for your accounting honorary society's Web page about the kinds of issues that must be considered when designing an accounting information system. Your purpose is to generate interest among the students in taking an accounting information systems course. Chapter 15 , which discusses writing for publication, will help you prepare your article.

Question 12

Your accounting honorary society's Web page is running a series of articles about various careers in accounting that accounting students might choose. You have been asked to write an article about the advantages of a career in management accounting. Write the article with the purpose of persuading students to seek a career in management accounting without discouraging them from considering other career choices. Chapter 15 discusses writing for publication.