Skip to content

ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements

Which of the following is a limitation of using financial statements for analysis?

A key limitation is that financial statements are historical. They report past transactions, often at historical cost, so they do not necessarily show what will happen in the future. Analysts must therefore supplement them with forward-looking information when judging an entity's prospects.

  1. AFinancial statements report historical information, so they may not indicate future performanceCorrect
  2. BFinancial statements are always prepared using fair values for every item
  3. CFinancial statements contain no information about prior periods
  4. DFinancial statements are never prepared on a consistent basis between periods

Explanation

Financial statements mainly report past transactions at historical cost. This means they are of limited use for predicting future results. The other options are untrue: fair value is not used for every item, comparatives are required, and consistency is expected.

Did you get it right without looking?

One question tells you little. A timed set on Importance and purpose of analysis of financial statements shows your real accuracy, how long you take and where you lose marks.

Practise Importance and purpose of analysis of financial statementsFree diagnostic mock

More Importance and purpose of analysis of financial statements questions