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How does subjectivity become a limitation …

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How does subjectivity become a limitation of financial statement analysis?

Posted by Girisha Jain 6 years, 11 months ago

CBSE > Class 12 > Accountancy

1 answers

Yogita Ingle 6 years, 11 months ago

Financial Statements are the basis- for financial analysis. Hence, the limitations of financial statements, such as influence of accounting concepts and conventions, personal judgement, disclosure of only monetary events etc. are also the limitations of analysis of financial statements.
Ignores Price-Level Changes : Financial analysis is based on financial statements, which are merely a record of historical cost. The analysis of financial statements will not yield comparable results unless the price level changes are taken into account.
Personal ability and bias of analyst : Influence of personal judgement also affects the analysis and interpretation of financial statement, as it is done by human beings. The financial analysis is also affected by the personal ability and bias of the analyst.

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