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IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information

Which of the following is a recognised limitation of relying on published historical-cost company accounts when assessing a company's future prospects?

Published accounts mainly report past transactions, and under historical cost assets may not reflect current values, so they give limited guidance on future prospects. They are audited and include liabilities and a profit and loss statement.

  1. AThey are always prepared using different accounting policies for every company
  2. BThey are legally required to be unaudited
  3. CThey contain no information about liabilities
  4. DThey mainly report past transactions and may not reflect current values or future expectationsCorrect
  5. They exclude the profit and loss account

Explanation

Accounts are backward-looking and historical cost may differ from current values, so they are limited for judging the future. Statutory accounts are audited, include liabilities and a profit and loss statement.

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