The inspector's duty is to the client, and no one else. Where a defect is found, the inspector may at their discretion, decide to say any number of things, including that something should be replaced or rewired, if in their opinion, this serves their clients needs.

Inspectors are not bound by the rules of a contract between the buyer and seller, so where the exact verbiage may be "functioned as intended", the inspector need not try and interpret what this means or where the line is.

If I see a sidewalk which is pitted, I call it out. If I see a tripping hazard, I call it out. If I believe a garage should be re-wired, though technically the lights and receptacles function, I call it out. So long as I have a reason, my job, as a building consultant, is to advise my client in the manner in which I believe they would want to be advised.

I also agree that the purpose of the report should be to render an opinion on the condition of the property on the day of the inspection. Keeping that in mind, the findings of the report are often used as a negotiating tool, even though that is not the intent and purpose of the inspection or report.