Skip to content

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

Which of the following statements about the limitations of financial statements for meeting users' needs is correct?

Financial statements are mostly historical and focus on financial effects, leaving out non-financial and forward-looking information. Because they are general purpose and not tailored to each group, they cannot fully satisfy every user's needs, and they exclude internal management information.

  1. AThey are historical and omit many non-financial matters, so they cannot fully satisfy all users' needsCorrect
  2. BThey are prepared on a forward-looking basis and so fully meet investors' needs
  3. CThey contain all the information that management uses for internal decision-making
  4. DThey are designed to meet the specific needs of each individual user group equally

Explanation

Financial statements report mainly past transactions and financial effects, so they omit forecasts and non-financial information that users might want. They are general purpose, not tailored to each group, and do not contain detailed internal management information. The other options therefore misstate their nature.

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