Limitations of financial statements
Statements often report historical amounts and estimates, apply particular measurement and presentation requirements, and may omit resources that do not meet recognition criteria. Judgements, inflation, accounting policy differences and non-recurring events can limit comparison. Use notes, cash flows and relevant non-financial information with the primary statements. A limitation does not mean the statements are useless or that every item is measured at historical cost.
Worked example
Two companies use different permitted policies for similar assets. Their reported carrying amounts and depreciation may differ, so an analyst reads policy notes before comparing return on assets.
Common mistake
Treating a reported amount as a complete current market valuation of the entire business or ignoring significant accounting policy differences.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |