CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements
Which of the following is a limitation of financial forecasting?
A key limitation of financial forecasting is that it depends on assumptions about the future, so unexpected changes in the economy, market or costs can make results differ from the forecast. It cannot remove uncertainty and is not limited to listed companies.
- AForecasts rest on assumptions, so unexpected changes in the environment can make them inaccurateCorrect
- BForecasts remove all uncertainty from business decisions
- CForecasts can only be made for companies that are listed
- DForecasts always equal the actual results if the method is followed correctly
Explanation
Forecasts depend on assumptions about sales, costs and the economy, so they can differ from actual results when conditions change. They cannot eliminate uncertainty and are not restricted to listed companies.
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