Like any other thing in the world, financial reporting also has some limitations. Financial statements or reports:
- Aren’t futuristic as the data they provide are from last year and the stakeholders and creditors are more interested in the future position of the firm.
- Could be a good measuring tool but no solution to the negative results as despite showing profitability and financial strength of the company they do not advise anything on how a company can improve the numbers and develop the business.
- Neglects the changes in the price level especially when the prices of commodities fluctuate oftentimes as the reports are created considering the current rates. Therefore, the results could be misleading.
- Don’t consider the qualitative aspects in the accounting process such as inputs received from the human capital of the organisation like their efficiency, technical know-how and profitability.
- Can give misleading results in the absence of trustworthy data. Hence, the reports are not completely dependable.
- Don’t consider intangible assets and take into account only the expense made to avail the intangible assets like creating a brand image which results in an acute change in the actual reports as compared to the generated ones.
