Skip to content

CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis

Which of the following is a recognised limitation of financial statement analysis?

A recognised limitation is that analysis rests on historical figures and can be distorted by differing accounting policies and price-level changes, which reduces comparability. It can be done by many users, supports comparisons, and still needs qualitative judgement from the analyst.

  1. AIt can be performed only by the company's statutory auditor
  2. BIt can never be used to compare two companies
  3. CIt is based on historical figures and may be affected by differing accounting policies and price-level changesCorrect
  4. DIt eliminates the need for qualitative judgement by the analyst

Explanation

Analysis relies on past recorded data, so it ignores price-level changes and is affected by differing accounting policies across firms. It can be done by many users, comparison is possible with care, and qualitative judgement is still needed.

Did you get it right without looking?

One question tells you little. A timed set on Financial Statement Analysis shows your real accuracy, how long you take and where you lose marks.

Practise Financial Statement AnalysisFree diagnostic mock

More Financial Statement Analysis questions